Tax Credit Boosts Sales and Prices – But Will It Last?

By Greg Sax on Wednesday, May 12th, 2010

For the fourth consecutive month, home prices in the Twin Cities 13-county metropolitan area showed a year-over-year increase. We haven't seen four consecutive months of progressively increasing year-over-year growth since June 2004.

The April median sales price of $169,800 was an impressive 11.0 percent increase from $153,000 last April. That's the strongest year-over-year increase since we've had reliably comparable data (2001). These strong price increases are mostly due to lender-mediated inventory migrating through the system, diminishing one of the key factors that was deflating prices. The tax credit also played a role.

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Lender-owned new listings were down 14.9 percent from last April; while pending short sales were up 77.3 percent over the same period. Both are positive indicators.

The median sales price of traditional homes (excluding foreclosures and short sales) in April was $199,650, down only $5,350 or 2.6 percent from $205,000 last April. Foreclosures posted a welcomed 9.6 percent increase to $126,000, while short sale properties posted a 1.5 percent decline to $147,750.

There were 5,781 signed purchase agreements in April, an increase of 10.9 percent from a year ago. That is the most for a single month since August 2005. Seller activity was also up, with 9,738 new listings posted—20.0 percent more than last April. Housing inventory for the Twin Cities is slightly down from last year at this time by 1.3 percent, settling in at 26,071 active listings for the end of April.

The tax credit temporarily increased pending sales and decreased inventory, and prices responded accordingly. Many regions across the country saw an uptick in activity as the April 30 federal tax credit deadline approached. Whtether or not we will see this continued level of elevated activity in the coming weeks and months depends on numerous factors.

In our market, buyer activity was certainly up, but in year-over-year comparisons, inventory remained relatively flat and the supply-demand ratio actually increased by 8.8 percent to 5.69. This means that there are 5.69 homes available per buyer for May. While the year-over-year rate of inventory decline has been slowing in recent months, supply and demand is far more balanced than it was two years ago when the supply-demand ratio was 7.33.

We'll need another month or two in the books before we can truly determine whether the increased sales activity is genuine market progress or if it is simply a short-term byproduct of the tax credit.

Comments

    2 thoughts on “Tax Credit Boosts Sales and Prices – But Will It Last?”

    Amazing write-up! This could aid plenty of people find out more about this particular issue. Are you keen to integrate video clips coupled with these? It would absolutely help out. Your conclusion was spot on and thanks to you; I probably won’t have to describe everything to my pals. I can simply direct them here!

    Minneapolis home prices are still artificially inflated (infamous bubble let’s not forget about) and nowhere close in line with income and affordability with stable 30 year fixed loans. That’s why people are still defaulting at alarming rates (please do not deny). There’s still a glut of “Shadow Inventory” from the Subprime wave. Just wait until the trillion plus worth of Alt-A and Option ARM’s play out in 2010 through mid 2012. Many more defaults/short sales/forclosures on the horizon. Also, most people bought into what are deemed “affordable loans” which are the “most” they could qualify for with interest only and negative amortizing minimal payment loans leaving no room for resets and recasts. Not to mention stagnating wages and high unemployment concerns. Add into the equation the inevitable increase in interest rates (yes, good ol’ Greenspan who kept interest rates way low for way too long which was THE huge mistake) and you should reasonably expect a much needed deflation in home prices that will offset the artificial prices still intact from the (ouch) infamous bubble. Go back to 1999 where homes listed on the MLS for $325,000 today sold for $120,000 and then take it year by year forward. Still not in line! We are still way off the mark for fair home prices. Let’s keep reality on the table! Enough of the weekly soft shoe sales lingo!

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