As many of us in the industry expected, the housing market has been exceptionally cool since the tax credit expired.  Buyer activity has fallen drastically in May, due mostly to a rush to buy before the April 30th deadline.  However, I firmly believe another tax credit would prolong the recovery, so although the market is down its the best to let the market play out without government intervention at this time. 

May’s housing market faces a hangover

Like a formulaic movie with a predictable ending, the post-tax-credit housing market is acting just as expected. Pending sales in the Twin Cities metro area took a sharp turn in May — from 5,183 signed purchase agreements in May 2009 to 3,910 signed agreements last month. That’s the fewest pending sales in May since the Minneapolis Area Association of Realtors started tracking the data in 1997.

With new listings falling more than 22 percent compared with a year ago, the normally optimistic group was more blunt. “It is clear that the tax credit party is over and the hangover has truly set in,” the group said in a press release.

May sales and listings were also significantly lower compared with March and April of this year, months when both buyers and sellers scrambled to beat the tax credit’s April 30 end-date.

Closed sales, on the other hand, are up, but that’s because buyers who signed purchase agreements in time to qualify for the tax credits must close on the sale by June 30 in order to see $8,000 from Uncle Sam.

Median price increased by 6.1 percent — to $175,000 on a bump in prices of foreclosed homes. Prices for traditional homes declined to $198,000 from $210,000 a year ago. Short sales also continue to see lower prices.

Mark Vitner, a senior economist at Wells Fargo Securities, is among the camp who believe that we haven’t seen the last price decline. In a recent housing research report, he said he expects prices to decline “a little further” through 2010 with a bottom being reached either at the end of this year or early next year. Once the prices reach their low, however, homeowners should only expect prices to rise “modestly,” he wrote.

Stephanie Gruver, an agent with Keller Williams Integrity Realty Lakes doesn’t need new statistics to tell her that activity is down. When asked to describe just how slow the market is for her, she said, “It’s November slow.”

To get traffic to her handful of listings, she’s increasing her advertising, revisiting potential buyer lists to see if consumers who decided not to buy in the past are ready now, and getting the word out about the home buyer incentives that are still being offered through cities and counties. She’s particularly enthusiastic about the Take Credit program, which is available through CityLiving, a group sponsored by the cities of Minneapolis and St. Paul. Take Credit offers a federal income tax credit of 20 percent of the mortgage interest paid for each year you live in the home.

“I tell them about that tax credit and it gives them an incentive to go look,” she said.

John Shaw, sales manager of Edina Realty’s Edina office, said he’s starting to see a traditional market emerge from the bottom-heavy market that dominated residential real estate when the first-time home buyer tax credit was still around. In his office, the homes that are selling tend to be at a higher price point. “The buyer for the under-$250,000 home has temporarily moved to the sidelines,” he said.

Since the tax credit ended, the 170 agents in his office are seeing far fewer showings than what’s typical this time of year. But that’s not to say they wanted the tax credit to continue.

“Real estate brokers around the country, even though they were maybe grateful that a stimulus plan was there, they’re equally grateful that it’s going away so we can establish a more normal market,” Shaw said.