End of homebuyer tax credit likely to halt rise in sales

By Buck Wargo

Fri, Apr 16, 2010 (3 a.m.)

The arrival of spring brought out more homebuyers in March with Las Vegas-area sales rising 33 percent over February, but local housing analysts and Realtors fear the expiration of a homebuyer tax credit at the end of April could slow sales in coming months.

The Greater Las Vegas Association of Realtors reported the 3,175 sales of single-family homes in Southern Nevada in March were 6.5 percent higher than March 2009 as well.

The concern is over the $8,000 (first-time) and $6,500 (repeat) tax credit in which buyers must have contracts signed by the end of April for homes that must close by the end of June. Dennis Smith, president of Home Builders Research, said the expectation is the federal government won’t extend it a second time.

“The tax credit has done what it was supposed to do,” Smith said in a housing press conference sponsored by the GLVAR. “But I am concerned the sales numbers will take a hit in July and August.”

GLVAR President Rick Shelton attributed the bump in sales to buyers rushing to take advantage of the federal tax credit. He is also worried about the impact on the Las Vegas housing market, even though low prices have spurred sales.

“I am not certain it is a wise move to alter something that is working midstream,” Shelton said. “I liken it to rowing across the river and you throw the oar out halfway across. I am not sure how intelligent that move is.”

Shelton said the Las Vegas housing market, up until now, has been “precisely where it needs to be.” He said the market is entering the second phase of its healing process by shifting to one that is more stable in terms of prices, which he expects to increase.

“I also think consumer confidence is coming back as more buyers believe the local housing market is either at or past its lowest point,” Shelton said.

The median price of single-family homes edged slightly higher in March to $136,000, up from $135,694 in February. Prices are 8.7 percent below where they were a year ago.

Former GLVAR President Devin Reiss said he expects 2010 to be better than 2009, as last year was compared to 2008. But he said he is tempering being too optimistic because the recovery in the housing market is going to happen in small increments.

Reiss said the tax credit has done its job in encouraging people to purchase homes who would have otherwise remained on the sidelines, but he said his biggest concern isn’t of its expiration but of rising interest rates. That would dampen home sales, he said.

Another factor that will influence the housing market is the continuing increase in short sales, in which lenders allow homeowners to sell homes for less than they are worth in lieu of foreclosing on them.

The GLVAR reported an increase in short sales and decrease in sales involving foreclosed homes. In March, 25 percent of homes sold were short sales compared with 22 percent in February.

Foreclosures fell from 57.4 percent of sales in January to 53 percent in February and 50 percent in March.

The U.S. Treasury Department is encouraging short sales by providing financial incentives to lenders and sellers.

Shelton said foreclosures “suck prices to the bottom” and suggested that in theory the increase in short sales should mean the median prices will rise over the next year. The reason is short-sale homes sell for higher prices than foreclosures.

The GLVAR reported that 43.8 percent of homes bought in March were cash deals compared with 48.7 percent in February.

Shelton said he has no qualms with investors in second homes making up more than 40 percent of the sales of existing homes. Without that group’s willingness to buy homes, demand would be weak for existing inventory and prices would continue to fall, he said.

“That would be a catastrophe,” Shelton said.

The GLVAR reported town home and condominium sales rose 19 percent in March over February and were up 35 percent over March 2009.

The median price of condos and town homes increased as well by 5 percent from $65,000 in February to $68,200 in March. That price is 3.3 percent lower than the $70,500 price a year ago.

By the end of March, 7,589 homes on the market didn’t have a pending or contingent offer, down nearly 5 percent from February.