Home Sales Decline 44% after April Tax Credit ends.

Home sales adjusting after surge before tax credits expired

KIRKLAND, Wash. (June 4, 2010) – Home sales during May tapered off around Washington state following a surge of activity in April as buyers hustled to meet deadlines for tax credits.

Northwest Multiple Listing Service brokers reported 5,242 pending sales (mutually accepted offers) last month, a decline of more than 44 percent from April’s total of 9,438 pending sales. Compared to twelve months ago when members tallied 7,160 pending sales of single family homes and condominiums, the volume dipped about 27 percent, but year-to-date figures show 2010 sales are well ahead of 2009.

Through five months, NWMLS members in 21 counties have notched 35,398 pending sales, outpacing the same period a year ago by 6,707 transactions for an increase of more than 23 percent.

“Leading up to its expiration, the tax credit caused a surge of home sales, but a surge can only be sustained for so long,” said Lennox Scott, chairman and CEO of John L. Scott Real Estate. “What we’re seeing now is a natural adjustment,” he explained, adding, “As consumer confidence continues to improve in the coming months, we expect to see the buyer pool replenish itself which should be followed by an increase in home sales.”

Listing activity also sagged during May after strong upticks in March and April during the buildup before the incentives lapsed. Brokers added 9,385 new listings to inventory last month, down nearly 17 percent from year-ago totals. The additions included 8,122 single family homes and 1,263 condominiums.

At month end, the area-wide inventory included 41,690 active listings, about the same total as a year ago when there were 41,318 residential properties for sale in the MLS database.

“Inventory is inching up compared to last year as more sellers are becoming optimistic that if they price their home competitively they will find a buyer in this market,” observed NWMLS director Dick Beeson, broker/owner of Windermere Commencement Associates in Tacoma.

Beeson noted the “extremely low interest rate phenomenon” is expected to last through the summer and into fall, which he believes will help give a nudge to buyers that “no longer can look to the tax credit for incentive.” He characterized the long-term effects of low interest rates as “very positive,” saying such rates make homeownership even more of a bargain than the price adjustments that have occurred over the last few years.

Frank Wilson, another MLS director and the managing broker at John L. Scott, Inc. Poulsbo, agreed the slowdown during May was due in part to the end of the incentive program, but noted overall activity so far this year is stronger than a year ago. As the market returns to normal, Wilson expects home values may continue to decline in some parts of Kitsap and within some price ranges.

As an example, Wilson mentioned the waterfront category, noting it “continues to soften with the bottom hopefully in sight later this year.” Conditions still favor buyers, he observed, citing low interest rates and “a lot of choices within the active inventory.”

Prices for home sales that closed last month declined about 3.6 percent compared to a year ago, but increased 3.4 percent from April. The area-wide median price was $269,950, down from twelve months ago when the median price was $280,000. Despite the overall dip in prices, ten of the 21 counties served by Northwest MLS had year-over-year price gains.

The volume of closed sales rose 27.3 percent from a year ago, rising from 4,154 completed transactions to 5,290 closings.

Commenting on the latest numbers, Northwest MLS director Bobbie Petrone Chipman said the statistics support her belief that the real estate industry will experience inverted first and second quarters due to the now expired tax credit. “Whereas traditionally the first quarter of the year reflects a yawn and stretch of the marketplace as it awakens into a more boisterous second quarter, this year was shaken awake during the first quarter by the tax credit,” she remarked. Petrone Chipman, the co-managing broker of Coldwell Banker Bain Tacoma/Puyallup, expects a slight lull for the second quarter.

“As interest rates remain phenomenally low and inventory remains high, first-time buyers will continue to recognize the tremendous opportunity and benefit of owning their own home,” Petrone Chipman commented, adding, “Move up buyers may not see as much equity return on the sale of their homes, but they will benefit from purchasing homes that may have been beyond their means a few short years ago.”

Pointing to closed sales, Petrone Chipman noted year-to-date volumes are up significantly (more than 38 percent) when compared to the same five-month period of 2009. “This is an indicator that the overall 2010 real estate market is moving in a healthy direction,” she declared. She also believes the Seattle area’s high rankings on various “best cities” polls are other reasons for optimism. For example, she cited a recent report by editors of Kiplinger’s Personal Finance Magazine that ranked Seattle second among “10 best cities for the next decade” based on an assessment of vitality and growth potential.

Commenting on activity in Pierce County, where his office is located, Beeson said homes in the mid- to lower-price ranges are still the favorites of buyers, leaving many high-end sellers anxiously waiting in the wings for their day. He described the market as “steady” and “edging along” after the torrid pace of activity in late April as the tax credits were ending.

Beeson said research by the National Association of Realtors and the Washington Research Council indicates approximately 58,000 first-time homebuyers in Washington state used the tax credit. These sales generated $640 million in state revenue and $6.5 billion in state economic activity.

Nationally, a report by the Mortgage Bankers Association issued in mid-May reflected adjustments in activity coinciding with the expiring tax incentives. In a statement on May 19, Michael Fratantoni, MBA’s vice president of research and economics, said purchase applications plummeted 27 percent during the previous week and declined almost 20 percent over the past month, despite relatively low interest rates.

“The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season,” Fratantoni stated. “In fact,” he continued, “this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009. However, refinance borrowers did react to these lower rates, with refi applications up almost 15 percent, hitting their highest level in nine weeks.”

Northwest Multiple Listing Service, owned by its member brokers, is the largest full-service MLS in the Northwest. Its membership includes more than 24,000 brokers and agents. The organization, based in Kirkland, currently serves 21 counties in Western and Central Washington.