The Federal homebuyer tax credits expired for new contracts at the end of April and sales of these homes must close by the end of June to be eliglble for the credits - $8,000 for 'first time' buyers and $6,500 for existing homeowners. We have been trying to anticipate how much of the recent contract and current closing activity represents 'borrowing from the future' - activity that would have occurred anyway, but perhaps later in 2010 had buyers not been incentivized by the tax credits.
First we considered homebuyer traffic during May as compared with April, expecting to see a decline in visits to homebuilder sales offices in Colorado. However, several sales offices reported fairly good traffic continuing into May and early June, and reports from Hanley Wood Market Intelligence bear out this anecdotal evidence with no statistically significant decline in weekly traffic per project in May.
A different picture emerges from the most recent Weekly Mortgage Applications Survey reported by the Mortgage Bankers Association (MBA) on June 2. While the seasonally adjusted index for applications for home loan refinancing increased to its highest level since October 2009, the index for loans to finance the purchase of a home dropped. For the week ending May 28 "the Purchase Index decreased for the fourth consecutive week and is currently at the lowest level since April 1997 ... Purchase applications are now almost 40 percent below their level four weeks ago" according to Michael Fratantoni, MBA's VP of Research and Economics.
Because the MBA survey is national in scope and applies for all home sales, it is at best an indirect indicator for new housing in the Denver area. However, the size of the decline in activity starting in early May is a potential warning sign that there may have been a sharp drop in housing demand following the end of the tax credit influence period.
To see the MBA article click: http://www.mbaa.org/NewsandMedia/PressCenter/73038.htm
According to the Wall Street Journal, some key national housing analysts believe home sales declined substantially in May. Ivy Zelman estimates that sales of new homes were down 25 to 30 percent from April. Lawrence Yun, chief economist for NAR estimated that contracts for resale homes were down 20 to 30 percent from May 2009 to May 2010.
View the WSJ article at http://online.wsj.com/article/SB10001424052748704080104575286760022273010.html (subscribers only, unfortunately)
Finally, consider the following metro Denver area data from Metrolist. Based on the number of new home contracts, activity for March and April 2010 was on fire as compared with 2009. However, the 27 percent decline in May 2010 offset most of the increase from January through April.
# Homes Placed Under Contract (Metrolist) Month 2009 2010 % Change 2009 YTD 2010 YTD % Change January 3,831 3,690 -3.7% 3,831 3,690 -3.7% February 4,183 4,414 +5.5% 8,014 8,104 +1.1% March 4,826 5,907 +22.4% 12,840 14,011 +9.1% April 5,183 6,616 +27.6% 18,023 20,627 +14.4% May 5,343 3,883 -27.3% 23,366 24,510 +4.9%
Unfortunately for the housing market, it seems pretty clear that fundamentals of supply and demand are still working – lack of job growth and high foreclosures continue to depress housing demand. This fundamental weakness was only mitigated for a couple of months by the government “cash for shacks” tax credit subsidy directed to a lucky few – who might have purchased a home later in 2010 anyway. It looks to me as though most of the increase in activity through April was probably “borrowing from the future.”
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