Posted: May 01, 2010
Who Owns Colorado: Feels like the first time—but then what?
As the new homebuyer tax credit ends, real estate pros are mixed on whether the market has bounceBy David Lewis
In March, police charged Donald Wolfe with public drunkenness when they observed him beside Route 36 in Oliver Township, Pa., giving mouth-to-mouth resuscitation to a deceased opossum.
Little did Wolfe realize that, for our purposes, he also was starring in a roadside tableau titled, "The U.S. Government Revives the Residential Real Estate Market," with himself as the federal government and the poor possum playing the residential real estate market.
In this tableau the government tries one thing after another - the Home Affordable Modification Program, the Second Lien Modification Program, the Home Affordable Refinance Program, the Home Affordable Foreclosure Alternatives Program - but the animal just lies there.
Then the Obama Administration improves on a Bush Administration first-time homebuyers program and - a miracle! - that damn possum just gets up and walks away.
Can it happen? Can the expiring first-time homebuyer tax credit bring this moribund market back to life?
Could be. We'll soon see.
IRS figures indicate the First Time Homebuyer tax credits have been a Colorado success story. Nationally, of course, the three states ranking highest in 2008-2009 First Time Homebuyer credits were: California, $1.47 billion; Texas, $1.18 billion; and Florida, $936 million.
But Colorado held its own, tallying $247.86 million in the tax in 2008-2009. This amount was virtually equal to, ahem, New Jersey, but Jersey has 8.7 million people and Colorado just 4.9 million. Among states in the region, only Arizona's $352.4 million in First Time Homebuyer credits exceeded our numbers.
Many real estate observers and players envision a way the market could be on the glide-path out of this mess, thanks in large part to three successive first-time homebuyer tax credits offered by two successive presidencies.
Through the September 2008 Bush version, part of the Housing and Economic Recovery Act of 2008, first-time homebuyers could claim a $7,500 tax credit that had to be repaid in equal increments over 15 years.
The Obama tax credit, part of the American Recovery and Reinvestment Act of 2009, upped the credit to $8,000 and - here comes the genius part - did not require homebuyers to repay the U.S. Treasury. Rather, qualifying taxpayers who bought before Dec. 1, 2009 could claim up to $8,000 ($4,000 if married and filing separately) on either their 2008 or 2009 tax returns.
In part three, Congress and the administration saw what a good thing they had done, and in November 2009 the Worker, Homeownership and Business Assistance Act became law. The act extended the deadline for the tax credits to this May 1, the date when taxpayers must have a binding home purchase contract, and July 1, the date when they have to close on the home.
The act also expanded the tax credits beyond first-time buyers to include a credit up to $6,500 for "long-time residents of the same home ... if they purchase a new principal residence by this deadline."
(Chances of a fourth-stage First Time Homebuyers tax credit extension? Nil, at least at this stage, observers agree.)
One result was that U.S. first-time homebuyer sales were up 47 percent in 2009 over the year earlier, and up 42 percent in February 2010 (the latest date available) from the same month the year earlier, according to the National Association of Realtors.
That's good, because 36 percent of all 2009 sales either were foreclosures or short sales, the NAR reckons.
Nationally, "The thinking is, if we have the kind of surge this spring that took place in the fall, we will have absorbed enough inventory to get down to balance levels," says Walter Molony, NAR senior public affairs specialist. "Once we get down to balance then the market can be self-sustaining."
Nationally, "Given the population size we should be looking at existing home sales of between 5.5 million and 6 million a year; in November, when it looked as if the tax credit was expiring, home sales shot up to 6.5 million - which is not sustainable," Molony says. "So we're going to be seeing these gyrations in the market, but hopefully by the end of the year we'll be at a self-sustaining level."
Locally, signs of life are few. Yet one local number glistened with promise as of mid-April. While other home sales price categories might still be swollen with unsold houses, only 2.7 months' worth of Denver residences selling for $250,000 and under remained, down from 5.7 months in April 2008.
Meantime, median prices of Denver single-family homes and condos in the $250,000-and-under class have risen 13 percent in the past 24 months; homes in that range under contract rose 22 percent in that period; and homes and condos selling for $250,000 and less sold at a clip 24 percent higher than that two years back.
Prices rising and inventories coming back to Earth are good signs. Conversely, home sales in the under-$250,000 category have been the lifeblood of the Colorado recovery, and now they're getting scarce.
Meantime, March's Denver-area home sales rose 48 percent over the number tallied the month before, and there was every reason to believe April's numbers would follow suit, while median home prices swelled a healthy 12 percent from month to month.
"People still have a thought process that this is a buyer's market and there's lots of inventory, but you talk to a buyer and they might have to make four, five, six offers on homes to get one," says Scott Nordby, broker-owner of Denver-based Innovative Real Estate Group.
At this point, naysayers offer two truisms, or clichés if you like, to illustrate their continuing anxieties about the residential real estate market. One is that this apparent recovery is just a "dead-cat bounce."
"If we are at the bottom, we're bouncing off the bottom. I'm not sure how soon we're going to get any traction," says Brian Kincade, Realtor with Cherry Creek Professionals Realty.
Buyers "are not jumping off the fence like this is the time," he adds. "They are still taking their time before they take that plunge unless there's another driving force pushing them to do so."
The other truism pessimists repeat is that the homebuyer credits are nothing more than another example of "Cash for Clunkers Hangover Syndrome," in which turning old cars into scrap provided a short-term boost for the new car market, which slumped again once the program ended.
"We're seeing a lot of people buying now, folks who have been renting who might otherwise have put it off for a couple of years, partly because of the tax credit," says Michelle Mitchell, president of Denver-based Colorado Housing Assistance Corp., a nonprofit that offers loan programs and financial counseling aimed at low-income homebuyers.
"But we think that the end of the tax credits will slow things down fairly significantly," Mitchell adds.
"There's a mountain of foreclosures ahead," cautions Kincade, who says the First Time Homebuyers credits "have been helpful but haven't lifted us out of the hole as much as put a bandage on it."
Most in or near the realty business disagree.
Realtor LaTonya Bohnenkamp is a buyer's broker at Innovative Real Estate Group. Speaking of Front Range prices, "Everything is starting to stabilize or increase in value," she says, "and in some locations, prices are actually increasing in value."
Bohnenkamp and others credit the combination of the tax credits, low-but-slowly-rising interest rates, and low prices for what appears to be signs of a recovery.
"The First Time Homebuyer tax credit was a very big boost for our homebuyers," says Cris A. White, executive director and chief executive officer of Denver-based Colorado Housing and Finance Authority.
As of mid-April the numbers of buyers seeking the tax credits were spiking, White says. "Going forward, another thing that will keep (mortgage lending) production level or possibly even increasing is that interest rates are starting to go up a little bit. It might sound counterintuitive, but when rates start to tick up people take notice and want to get in before they go up too much further....
"Our point of view is that the tax credits worked, but it is not unreasonable to expect some leveling off when they end," White says.
David Lewis is a freelance writer based in Denver.