Assessing the Long-Term Housing Outlook

The question on the minds of everyone, both on Wall Street and on Main Street, is this: What will happen to the real estate market after April 30, with the expiration of the Federal Home Buyer Tax Credit?

Tax credits once again sparked a big jump in home sales last month, as first-time buyers took advantage of low prices and interest rates.

But the longer-term housing outlook remains less clear, with a large inventory of foreclosed homes expected to hit the market later this year, and still more “shadow inventory” waiting in the wings. predicts that 1.9 million homes will be lost to foreclosures or related defaults this year and another 1.1 million in 2011. That compares with two million last year and 600,000 in normal times.

The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metro areas found that inventories of homes for sale, as well as the number of distressed borrowers, remain very high in many metropolitan areas.

What that has meant, historically, has been a downward pressure on prices in response to excess inventory and distress sales. But nothing about this market has matched historic trends.

Sales of single-family homes and condominiums hit a seasonally adjusted annual rate of 5.35 million in March, according to data from the National Association of Realtors. That compares with a 5.01 million rate in February and was up 16% from the depressed March 2009 rate of 4.61 million. Analysts believe the tax incentives were the driving force behind March 2010’s strong numbers.

The median price for home resales in March was $170,700, up 0.4% from a year earlier, the Realtors reported. A price index produced by the Federal Housing Finance Agency in February was down 3.4% from a year earlier, the agency said. Realtors say prices for middle-class homes in the types of neighborhoods that attract investors and first-time buyers are flat or rising slightly, while higher-end home prices generally continue to fall.

The index of U.S. leading indicators rose in March by the most in 10 months, a sign the economy will keep growing into the second half of the year. The 1.4% increase in the New York-based Conference Board’s measure of the outlook for three to six months was more than anticipated and followed a revised 0.4% gain in February.

Still, many sources believe we must continue to shore up the market with incentives for home buyers. California is offering tax incentives for new home buyers starting May 1, 2010, a day after the expiration of the federal homebuyer tax credit on April 30. The state has seen the positive impact that both the federal homebuyer tax credit and last year’s state tax credit have had on California’s housing market. While hoping the new state tax credit will continue to bring stability to the California marketplace, the available funds are limited, and most are predicting that they will be exhausted by month’s end.

To further bolster the market, Coldwell Banker has announced a 2010 Buyer Bonus Event, a national sales event designed to extend the benefits of the Home Buyer Tax Credit program after the April 30th deadline. The program was designed as a way to keep homebuyers in the market after April 30th, while extending the benefits of the government program to a much wider audience of potential homebuyers. The event will begin May 1st and end July 31st. The launch is timed to coincide with the April 30th expiration of the government’s Homebuyer Tax Credit.

What is unique about the Coldwell Banker program is that it mobilizes sellers to put their property in an advantageous position in the marketplace. Home sellers will have the option to opt-in to the program. Home sellers that participate will agree to refund 3% of their final purchase price as a credit of up to $10,000 to the buyer at close. It’s open to all homebuyers and there are no eligibility or qualification restrictions.

What effect will all of these credits and incentives have on the market? Time will tell. Will Washington act again to extend the Home Buyer Tax Credit? Again, time will tell.

But if you are in the market, the stars seem aligned for homebuyers.

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