Las Vegas Sun

March 18, 2024

Housing market awaits impact of tax credit’s expiration

The Las Vegas real estate community is divided over the fallout over the expiration of the federal tax credit to buy homes.

Some analysts and Realtors are expecting sales in the coming months to drop. Others contend the impact of the $8,000 credit for first-time buyers and $6,500 for existing homeowners has been overblown and said affordable prices, low interest rates and demand from investors will keep sales close to their current elevated pace.

April 30 was the deadline for prospective buyers to sign contracts, and they have until June 30 to close on their home. That means the full impact of the tax credit expiration won’t be known until statistics are released this summer for closings in July and August, analysts said.

“I think the general consensus is that (real estate) activity is going to decline,” said Las Vegas-based Shane Whitmore, the Southwest regional manager for Hanley Wood Market Intelligence, a real estate research firm. “I think a small portion (of the boost to the market) were new-home buyers, and that is definitely going to hurt new-home sales.”

In the latest count for March according to SalesTraq, the Las Vegas area had 499 new-home closings, 24 more than March 2009. The existing-home closings in March were 4,671, about 800 more than March 2009.

Richard Lee, a vice president at First American Title in Las Vegas, said so many people have taken advantage of the tax credit that its expiration will slow down the market. He said he worries that not only will foreclosure properties backlog because there are fewer buyers, but new-home sales will suffer as well.

“I was starting to see life in the new-home market that I hadn’t seen in 18 months,” Lee said. “Because of all the hassles in buying a foreclosure, people were turning to new homes.”

Dennis Smith, president of Home Builders Research, said the expiration of the tax credit produced a notable run-up in sales in the new-home market, especially at the end of April. In a valley with a little more than 200 subdivisions, there were 0.8 net sales per subdivision per week in April and it averaged one in the last week of April, Smith said. In February, there were 0.35 sales per subdivision per week, which was higher than the 0.2 sales during the Christmas holidays, he said.

“It definitely worked,” Smith said. “The industry hates to see it go. I think it will go back to where it was in February for the short term. I hope it is not worse than that, but it could dip to where it was during the holidays.”

Even though investors are a large segment of the buyers, Smith said there aren’t enough of them to keep the buying frenzy going.

But Bob Hamrick, president of Coldwell Banker Premier Realty in Las Vegas, disagrees. He said the cessation of the tax credit won’t have the negative impact that some think it will.

Hamrick said the first round of tax credits that was extended before it expired Nov. 30 had a much bigger impact on sales that the second wave. Few existing homeowners took advantage of the $6,500 tax credit available to them in the extension because of problems with selling their homes that have lost so much value.

“I am not expecting a big drop-off,” Hamrick said. “The reality is the investors are stronger than any other market segment out there. We are expecting that to continue to be strong and it might replace the loss of the first-time homebuyers.”

Rick Shelton, president of the Greater Las Vegas Association of Realtors, said he believes the extension of the tax credit “was just a gift” and people were more focused on buying an affordable home than collecting on (the credit).

He said he expects the housing market to continue as it has in terms of sales.

Shelton said he didn’t see the mad rush to buy existing homes as the credit expired and added there was a bigger impact when the credit was enacted last year.

“I think if you saw sales double or triple compared to 12 months or six months ago, you could say it had a big impact,” said Shelton, who said the credit was responsible for marginal increases at the end. “I think the increase we saw in January, February and March 2009 over the January and February and March 2008 was far more substantial.”

Linda Rheinberger, president of the Nevada Association of Realtors, said the tax credit has helped the area tremendously and the housing market will feel its loss.

The final tax numbers aren’t in yet, but it appears the first round helped the foreclosure market the most and the second round that just expired helped the new-home market, Rheinberger said.

“It was pretty fast and furious,” Rheinberger said of the sales push in April.

Rheinberger will be part of a contingent of the National Association of Realtors in Washington, D.C., lobbying lawmakers for more help with the housing market. She said it’s too soon to seek another tax credit and that the emphasis this time will be on seeking federal help in addressing problems with appraisals.

Appraisers are undervaluing homes and requiring prospective buyers to come up with more cash to get loans, Rheinberger said. That is quashing deals, and if that was addressed it would help make up for the loss of the tax credit in coming months with affordability so good and interest rates low, she said.

“This is an election year, and things that normally take longer can move more quickly,” Rheinberger said. “I am encouraged.”

Realtors and builders must retool their selling points now that the tax credit has expired, Smith said. The big focus is the affordability and low interest rates, he said.

The bigger concern isn’t the lack of a tax credit but where the economy and jobless rate are heading this summer, Smith said. People need jobs if they are going to buy a home and jobs are what lure people to Las Vegas to buy homes, he said.

Smith said he’s not expecting prices to drop unless banks start dumping foreclosure inventory on the market, and there is no indication that’s going to happen.

SalesTraq President Larry Murphy said if the economy improves, there won’t be a drop-off in sales despite the end of the tax credit. It would be a shame to see the momentum of the tax credit wasted, Murphy said.

The 700 in new home permits pulled by builders in March in the Las Vegas area was the most since June 2008, Murphy said. Builders opened 17 new subdivisions in March and even some communities that were abandoned have reopened, he said.

Andrew LePage, a spokesman for San Diego-based MDA DataQuick, a real estate research firm, said he expects the impact on the Las Vegas housing market to be noticeable during the second half of the year.

The reason is many people who were planning on buying a home moved up their purchases to take advantage of the tax credit, LePage said.

“It probably stole some demand from the future,” he said. “I think the second half of the year is going to be weaker than it otherwise would have been.”

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