The prime conditions for an early selling season were just starting to take hold during February. The continuation of the Homebuyers Tax Credit and amazingly low interest rates have converged to give would-be buyers a “kick in the pants”. All of the activity (remember last January and February?) so far this year has translated into just a 5% jump in closings compared to the first two months of 2009. But I can feel that there is more mass to this activity than what has shown up thus far at the closing table. To give you a bit of a preview, as I write this in late March, the number of closings has jumped 17% from the same time period a year ago.
Good news all around, but does it have an expiration date? Is April 30th the date when the carriage turns back into a pumpkin? Let’s look at a the two sides of this question.
If the tax credit is not extended in some capacity we will see a sharp drop off in the sales of entry level homes. It is inevitable, we have been borrowing sales from the future and when the incentive ends I suspect we will have a bit of a hangover which will dampen the momentum we have seen recently.
Another possibility is the extension of the Homebuyer Tax Credit but with a smaller credit. For example instead of an $8,000 credit for first time buyers, the credit would be reduced to $6,000 for the next three months and then stepped down again to $4,000 and again to $2,000 and then phased out. A similar stepped down approach could be implemented for the move-up credit, which currently stands at $6,500. The tax credit has helped bolster sales but it hasn’t been the end-all solution that some thought it might be. The truth of the matter is that if someone doesn’t have a job, the credit or the confidence to buy a house a tax credit doesn’t mean much. As we move slowly out of recession, the economic principles which lead people to move (new jobs, promotions, transfers) will naturally increase the activity in the market. This along with a tax credit will have a broader impact. An extension of the Homebuyer Tax Credit has not been announced and I don’t expect it would be until very close to the end of April. At this point this type of thought is just speculation and it is too early to tell. However, it certainly is not too early to start lobbying for the support of such a program by contacting your representatives in Washington DC.
Now so that we don’t get too far off the subject, here are a few statistics.
- Absorption Rate – This measures the current inventory as well as how quickly homes have been selling in any given market. You find absorption rate by finding the average number of homes that sell each month and then dividing that number into the total of homes currently on the market. I use an entire year of sales to find the average monthly sales rate because it smoothes out seasonality. Others use a shorter period of time. The result of the equation is the number of months it would take, given the current sales rate to sell the entire current inventory. Here is the absorption rate for Boulder County by price range.
$0 – $249,999 = 6.51 months
$250,000 – $499,999 = 7.8 months
$500,000 – $749,999 = 10.5 months
$750,000 – $999,999 = 22.5 months
$1,000,000 – $1,249,999 = 18.5 months
$1,250,000 – $1,499,999 = 48 months
$1,500,000 and above = 37.6 months
- So far in 2010 there have been 602 sales of single family and attached dwellings in Boulder County. 79% of those properties have sold for less than $499,999. Here is the breakdown of what has sold and the percentage of the market by price range.
$0 – $249,999 = 235 Sold (39%)
$250,000 – $499,999 = 246 Sold (40%)
$500,000 – $749,999 = 88 Sold (15%)
$750,000 – $999,999 = 16 Sold (2%)
$1,000,000 – $1,249,999 = 6 Sold (1%)
$1,250,000 – $1,499,999 = 2 Sold (<1%)
$1,500,000 and above = 9 Sold (2%)