Tax Credit Effect on Austin Real Estate Market

by Steve Crossland, REALTOR in Austin TX on May 16, 2010 · 11 comments

The $8,000 buyer tax credit ended April 30, 2010. Take a look at the following graph to see the effect the tax credit had on buyer activity in Austin TX.  This shows Pending activity for Austin MLS listings going back to Jan 2005 through April 2010. The green line is 2010. The previous years of 2007, 2008, 2009 are represented by the other colored lines.

Austin Pending Listings Graph 2007 through April 2010I used Pending listings because a lot of the April Pending sales haven’t closed yet, but anything that qualified for the tax credit would have to be Pending by April 30th, so this gives us a sneak peek at what the sales data will look like for May closed sales.

A couple of interesting things to note here. I went back to 2007 because that was the peak year for Austin. As you can see on the chart, April Pending listings exceeded the peak year of 2007 for April. I suspect we’ve never experienced an April in Austin where almost 3,000 homes received accepted offers.What does this mean for the future?

Looking forward, and seeing the trend lines of previous years, I think it’s safe to say that when I update this chart in June, to include all of the listings that go to Pending status in May, we’re going to see the green line dip almost all the way back down somewhere between the 1200-1600 line. That’s going to look quite interesting visually. We’re more than halfway through the month and there is only 656 Pendings so far for May. Unless the second part of May experiences a hugh uptick in activity, we will in fact see the market swinging from one extreme to the other and the green line above will take a breathtaking plunge.

Then the question will be whether or not the May plunge will represent a temporary market hangover and will eventually rejoin the other trend lines, or at least somewhere close, or if we have in fact stolen so many future buyers and crammed them into the first 4 months of 2010 that the trend line will remain below the others for the remainder of the year. If the latter happens, it won’t be good news for Austin sellers and we will see continued price slippage.

Meanwhile, because of economic turmoil in Europe, caused by Greece’s problems, and the subsequent “flight to safety” by investors to safe U.S. fixed income products, interest rates have not taken the expected upturn yet and in fact remain at historic lows. I just locked 4.75% interest on a property Sylvia and I are purchasing. I doubt I’ll see that again for a 30 year fixed mortgage in my lifetime.

Thus, if you’re a buyer who missed the $8K tax credit, the good news is you’re going to realize a much greater savings than that in the lifetime interest paid on your sub-5% loan, if you get in and buy a home while interest rates are still low and sellers are seeing fewer showings.

Sellers, it’s going to require some patience to see if June/July summer selling months shake off the May hangover and snap back into normal behavior. It’s still a guessing game, but I just encouraged an investor thinking of selling to hold off another year because I’m much more optimistic about summer 2011 than I am summer 2010.

But won’t rising interest rates hold down prices in 2011?
Maybe, but I think that will be offset by improving job growth and the continued migration of job seekers to Austin from areas that may take years to recover economically.

And who’s going to say it’s necessarily a bad deal for someone to buy a house in Austin in 2011 at the 2007 price and a 6% interest rate? Come on. Really.

{ 11 comments… read them below or add one }

1 Greg May 17, 2010 at 10:34 pm

> I just locked 4.75% interest on a property Sylvia and I are purchasing
Owner occupied or non-owner occupied?
Par or did you pay some points to buy down the rate?

2 Steve Crossland, Austin REALTOR May 17, 2010 at 10:47 pm

Hi Greg,

Owner-occupied, no points or buydown.

Check with our mortgage gal for more details about current rates. Cheryl is great. She ALWAYS closes our buyers on time with no hassle and provides great service.
http://www.cnmcs.com/cheryldarter/

Steve

3 Greg May 17, 2010 at 10:51 pm

Thanks. Greed glands fired up wondering that was a NOO.
I’ve worked with Cheryl in the past – she’s great.

4 MB Reatly Dude May 19, 2010 at 4:38 pm

Yes, I agree. People don’t realize how much the low interest rates effect their overall costs. Hopefully prospective first-time homebuyers will think “long-term” and jump on the opportunity that currently awaits them to pay much less for their home due to low interest rates.

5 Brett May 20, 2010 at 3:09 pm

@MB : You can always change your interest rates, but never the principal…
I’d rather buy at a low price and high interest rate; then, refinance a few years down the road when the rates drop.
Low interest rates = cheap money = home price inflation…

6 Tony @ Siterra Real Estate Software May 21, 2010 at 11:13 am

I agree with Brett that it’s preferential to buy at a low price and a high interest rate. I think it’s rash to assume that interest rates are going to be drastically higher or lower than they are now in a 10-year timespan. To state that one will be unable to refinance for under 6% in 10 years is speculation at best, alarmism at worst.

7 Vince Burns May 21, 2010 at 1:34 pm

I wish the government would stop trying to “cook the books” and the the market adjust.

8 Lisa May 24, 2010 at 2:42 pm

Wonderful post! The graph really makes the numbers easy to understand. It’s one thing to hear about the tax credit and it’s effect on the market, but it’s quite another to SEE the data in front of you, especially when the changes are this dramatic.

Do you mind if I link to this post? I may blog about the tax credit this week and I think the visual you gave here will help.

9 Steve Crossland, Austin REALTOR May 24, 2010 at 2:50 pm

Hi Lisa,

Links are always welcome! Give credit on your site if you use the graphic in your post.

Thanks

Steve

10 Doug Francis June 3, 2010 at 1:23 pm

It will be interesting to see how this graph turns in May, June and July as I suspect a lot of the home sales were pulled forward to meet that April 30th deadline. Almost like the concentrated shopping season we see leading up to December 25th every year.

11 Steve Crossland, Austin REALTOR June 25, 2010 at 8:06 am

I’ve updated the Pending stats for May. New blog story at:
http://crosslandteam.com/blog/2010/06/25/austin-pending-sales-update-through-may-2010/
Steve

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