Boulder Real Estate

Home buyers have only 77 more days to contract for their new home and still be eligible for the federal tax credit of up to $8,500.  While buyers have until June 30th to get the deal closed, the deadline to contract for the property is looming (again).  And with the revised tax credit now applying to first-time buyers and repeat buyers who have owned their home for 5 out of the previous 8 years, the issue of "what then?" is an interesting one.  Put another way, does the residential real estate market have enough organic momentum to prosper without federal intervention?

There are two important issues here: 1) The importance of the pending deadline for the federal tax credit, and 2) What will the impact be of the tax-credit deadline expiration?  Many speculate that any further extension(s) of this home-buyer tax credit will be tough to pass given the costs involved, so buyers should probably view April 30, 2010 as a real deadline.  While some phasing out of the credit is an alternative to outright extension, the tax credit in its current form may really disappear this time.  With only 77 days left (as of today - 2/12/10), home buyers who are ready to buy should take advantage of all the factors working in their favor right now.

So what happens after the tax credit expiration deadline?  Long term, the housing market will likely rebound - albeit at a slower pace than we might all like.  In the short term, though, I thought it would be interesting to look back at the recent tax-credit expiration deadline of November 30, 2009, and see how the real estate market reacted.  That might be a decent barometer of what we can expect in say April/May of this year.

As this chart from NAR depicts, the Pending Home Sales Index (PHSI) dropped pretty dramatically from October to November, 2009.  The explanation is probably closely tied to the tax credit, as we saw significant increases in the months leading up to November - then the big drop.  In other words, most buyers trying to close by November 30th were under contract by the end of October.

It may be that we can expect something similar in the coming months, but hopefully not quite as severe due to the fact that we'll be in the Spring with this expiration vs. the Winter in the previous one.  That's not to say that housing markets will stay at those reduced levels, but there may be some short-term impact - whenever the federal tax credit eventually does disappear.

Ultimately, it will be good for real estate markets to operate without federal intervention and improve with organic demand, but in the short term, we may have to deal with a bit of volatility as the effect(s) of the home-buyer tax credit "wear off".

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