Market Activity Decreases as Tax Credit Expires

The First Time Homebuyer Credit expired on April 30th for qualified buyers who were not under contract on a home. Recently released MLS data for the month of May shows that across the nation the housing market found the $8,000 credit “stimulating”. A recent Wall Street Journal article cites a survey showing that homebuyer traffic fell by 45% in May compared to April.

The Central Denver Market was no exception. Looking at homes and condos under contract in Central Denver, we calculated a 47% drop in activity between April and May, during a time of the year when the market should be on a seasonal rise.

It’s still too early to know exactly how much of a difference this slump in demand will depreciate prices, if at all.

During the six months prior to the tax credit expiring, inventory for homes under $300,000 was at a record low (around a 2.5 months supply).  The decrease in demand will certainly increase the supply of inventory, but only time will tell if it will be enough to start depreciating home prices in that price range.

Of course, the amount of available inventory increases as you move up in price.  At the same time, the level of motivation to take advantage of the tax credit decreases; after all, how many million dollar buyers are first-timers, and would $8,000 really motivate them?

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