Las Vegas Sun

February 13, 2012

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Tax credit’s effect peters out, pointing to a lull in housing sales

By Buck Wargo

Thursday, May 13, 2010 | 2 a.m.

Dennis Smith

Dennis Smith

Steve Bottfeld

Steve Bottfeld

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With federal incentives for homebuyers set to expire, experts had expected a spike in Southern Nevada home sales last month. When they took a dive instead, some read it as a sign of things to come.

The Greater Las Vegas Association of Realtors reported that Southern Nevada sales in April fell 7 percent compared with March and 8 percent compared with April 2009.

April was the last month that homebuyers could qualify for a federal tax credit — $8,000 for first-time buyers and $6,500 for others.

“The consensus is that real estate activity is going to decline,” said Las Vegas-based Shane Whitmore, Southwest regional manager for Hanley Wood Market Intelligence, a real estate research firm.

New-home sales will be hurt in particular, he said, because the tax credit had propped them up.

Dennis Smith, president of Home Builders Research, which monitors the Southern Nevada housing market, said he thinks the drop-off in existing-home sales reflects the decline in foreclosures, which lured both investors and first-time homebuyers.

“You would think sales would have been stronger with the tax credit in effect,” Smith said. “I just think that’s just a reflection of the decline in inventory.”

The drop-off in the year-over-year sales is the first since March 2008, when the housing market showed early signs of recovery. The Realtors’ statistics primarily track existing homes, but some new homes might be included.

Andrew LePage, a spokesman for San Diego-based MDA DataQuick, a real estate research firm, said he expects the decline to be more evident during the second half of the year. Many people who were planning on buying a home during the next year moved up their purchases to take advantage of the credit, he said.

“It probably stole some demand from the future,” LePage said.

Not everyone sees slow home sales in the coming months.

Bob Hamrick, president of Coldwell Banker Premier Realty in Las Vegas, said the end of the tax credit won’t have as much of an effect as some think. The first round of tax credits, which expired Nov. 30, had a much bigger effect on sales than the second round.

“The reality is the investors are stronger than any other market segment out there,” Hamrick said. “We are expecting that to continue to be strong and it might replace the loss of the first-time homebuyers.”

Both investors and first-time buyers have turned to short sales in greater numbers, but those deals take time, Smith said. In a short sale, banks allow homeowners to sell a property for less than is owed on the mortgage.

The Realtors group reported 27 percent of sales in April were short sales, up from 22 percent in February. By contrast, bank-owned homes were 43 percent of sales in April, down from 53 percent in February.

Foreclosure sales tend to pull down prices compared with homes sold by owners, Smith said. The decline in foreclosure inventory explains the rise in the median price — to $142,000 — of homes sold in April, the first such increase on a year-over-year basis since February 2007, Smith said.

The median home price rose 4.4 percent from $136,000 in March and 0.2 percent from $141,720 in April 2009, the Realtors group reported.

The availability of fewer foreclosures has prompted some first-time buyers to turn to new homes, which bolstered sales numbers in April, Smith said.

Home Builders Research reported 708 new-home sales in March and 707 in April, up from 400 in February. Many of these are expected to close in the next month or two, Smith said.

On Monday, The Wall Street Journal reported that homebuilder Lennar is slashing prices by more than 15 percent. The newspaper article wondered whether builders overbuilt in anticipation of a wave of sales prompted by the federal tax credit, only not to have those sales materialize.

Smith said, however, that his stats showed new-home sales rose in Las Vegas in April.

Lennar has an inventory of about 50 homes in Las Vegas, but that is more a reflection of the builder than market conditions, Smith said. Other builders in Las Vegas such as KB Home and Richmond American have no inventory and Richmond American has raised prices, Smith said.

Steve Bottfeld, executive vice president of Marketing Solutions, a consultant, doesn’t see any sign of the new-home market weakening. From January to March, the median price rose $6,508, to $208,178 — the first two consecutive months of price increases since 2007.

Bottfeld said income tax returns are the reason he thinks the housing market will hold steady with the expiration of the tax credit.

“I have nothing but anecdotal evidence for this, but my guess is a lot of people averaged their incomes for the last four years and came away with significant refunds,” Bottfeld said. “If that’s accurate, look for buying activity to be stronger in the third quarter than the second quarter.”

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