- The Washington Times - Thursday, July 29, 2010

The federal homebuyer tax credit that expired on April 30 seemingly had its intended effect, creating a spike in pending sales contracts in the Washington area.

Statistics provided by Real Estate Business Intelligence (RBI), a subsidiary of Metropolitan Regional Information Systems (MRIS), show that pending sales (a reflection of signed contracts that have not yet reached settlement) peaked during the week ending May 1 at 4,614 contracts, compared with 2,617 pending sales for that same week in 2009. The increase of 76.3 percent from one year to the next during that week followed two previous weeks of increases of 41 percent and 31.6 percent over those weeks in 2009.

“If you look at the pending-sales history for 2010, you can see the contracts building up to the deadline and then the crescendo on April 30th, when the credit expired,” says RBI President Jonathan Hill. “The tax credit kind of acted like a vacuum, sucking up buyers that might have been in the market in May, June and July of this year, pulling them forward earlier in the year.”

While some real estate market analysts feared a backlash after the tax credit expired and anticipated a steep drop-off in sales, the market in the Washington area seems to have stabilized in the weeks since April 30.

“We’ve been gratified to see that after the bounce of the tax-credit buyers and a drop in pending sales during the first three weeks after the deadline, the market is actually doing nicely,” Mr. Hill says. “The pending sales are close to last year or a little above week by week. This demonstrates the underlying strength of the real estate market in the D.C. area.”

Steve Kann, a Realtor and district director for the Washington, D.C., metropolitan area for ZipRealty, says the tax credit functioned most to give buyers a sense of urgency.

“It looks as if buyers who might otherwise have bought at a different time were driven to make an offer in order to beat the tax-credit deadline,” Mr. Kann says. “But if you look at the average numbers for the same three-month period from April 17 to July 10, the number of pending sales was almost the same” as those weeks in 2009.

Overall, pending sales contracts this year were up in the Washington area by 4.8 percent from the week ending April 17 to the week ending July 10, compared to those same weeks in 2009, according to MRIS statistics.

The tax credit that expired April 30 was actually the third round of federal homebuyer tax incentives. The first, for 2008 homebuyers, requires repayment over 15 years, while the 2009 and 2010 credits do not need to be repaid. The second tax credit applied only to first-time homebuyers, while the third also included incentives for move-up buyers. The second tax credit expired Nov. 30, 2009.

Robert DiBiase, vice president of sales for the Capital Region for RealEstate.com, says, “From the time the tax credit was extended at the end of November last year through April of this year, the number of contracts in our office tripled.”

Mr. Hill says the most recent tax credit seems to have had a greater impact than the 2009 tax credit.

“If you look at the pending sales figures for 2009, there just wasn’t as big a jump as the one we saw at the end of April of this year,” Mr. Hill says. “I think there wasn’t as much of a push because the 2009 credit was in place for a long time and there was a lot of expectation that it would be extended, unlike this time around.”

Statistics on pending sales have not been separated locally into first-time-homebuyer and move-up-buyer purchases, but anecdotally, most of the evidence points to first-time buyers representing the bulk of buyers.

“It seems as if most of the buyers taking advantage of the tax credit were first-time buyers,” Mr. Kann says. “Move-up buyers would have needed to get their own home sold in addition to finding one to buy, and that was a lot harder to do before the deadline.”

Mr. Kann says the federal tax credit spurred sales of lower-priced homes, and he suggests this indicates most of the buyers were first-time buyers. He says that in the under-$200,000 price range, there were about 30 percent more pending home sales from April 17 to July 10 in 2010 compared to those same dates in 2009. In higher price ranges, pending sales rose by 10 percent to 15 percent.

Tammy Petrillo, a Realtor with RealEstate.com in McLean, Va., says 75 percent of her transactions before the tax credit expired were with first-time homebuyers.

“Most of the buyers I worked with were looking for homes under $300,000, so there was a lot of competition among buyers, and some of them even missed the tax-credit deadline because they couldn’t find a home in time,” Mrs. Petrillo says. “Some residual effect of the tax credit seems to be that buyers are still out there looking. May and June have been good months, too, not nearly as bad as we expected after the tax credit expired.”

Mrs. Petrillo says she encouraged homeowners with property priced at less than $300,000 to put their homes on the market before the tax-credit expiration date.

“Sellers in that first-time-buyer price range recognized that they could get top dollar for their home, especially if it was in good condition,” Mrs. Petrillo says.

Mr. Hill says the most sales activity before the tax-credit expiration was in the $100,000 to $325,000 price range.

“In that price range, especially in the D.C. area, a lot of people find they can own for the same price as renting and sometimes even less than renting,” Mr. Hill says.

Mrs. Petrillo says that without the tax credit in place, she is beginning to work with more move-up buyers, perhaps because first-time buyers have temporarily left the market now that they cannot meet the tax-credit deadline.

While first-time buyers were enticed into the real estate market by the tax credit, the impact on sellers is less easily measured.

Mr. Kann says potential sellers were not more likely to put their home on the market to capture the tax-credit buyers.

“Unless you have to sell, most homeowners are not choosing to put their home on the market,” Mr. Kann says. “Homeowners have the expectation that prices are improving, so they are more likely to wait until the market is even better.”

Mr. Hill says there was a jump in new listings of homes in February and March, with the highest number of new listings in one month since April 2007, which may have been a reaction of sellers to the tax credit.

“Now the D.C. market has about a six-month supply of homes on the market, which is considered a balanced market,” Mr. Hill says.

Mr. Kann agrees that the D.C. market seems to be normalizing, with an even balance of buyers and sellers.

“Inventory is down, days-on-the-market statistics are down, pending sales are up, and sales-price-to-list-price figures are up, so all of these are indicators that we are looking at a healthy and continuously improving real estate market in our area,” Mr. Kann says.

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