The successful 'Cash for Clunkers' may have ended today, but there is another similar government program that is doing quite well, and still going strong. It is the tax credit of up to $8,000 for 1st-time homebuyers.
This program was instituted to give "1st-time homebuyers", which includes anyone that hasn't owned a home in the past three years, an additional incentive to buy in this down economy. It is a tax credit (not a deduction, so you get the entire amount back when you do your taxes) for 10% of the home's purchase price, up to $8,000. It applies to any home bought after January 1st, 2009, and any home purchase that closes before December 1st, 2009.
During the first several months of the program, there wasn't an immediate response. But since the beginning of summer, the program has become very popular, and is helping the market turn around.
I've done some research, looking at all homes that have sold in Livingston County for under $150,000 (since that is the price ceiling for most 1st-time buyers). The initial three months of the year had stats very similar to the last three months of 2008. But the past three months have shown significant results.
I'm not going to go into most of the numbers, since the real estate market is cyclical, and summer is usually more active than winter. But there is an important aspect to the market that has changed and can not be explained by the cycle. This is the make-up of the sales: the percentage of total sales that are foreclosures, private-owned, or short sales.
(Short sales are when a private owner sells a home for less than they owe, and the bank forgives the remainder of the mortgage)
When the program began, bank-owned homes dominated the market. There weren't many sales, but the homes that were selling were foreclosures. In fact, during the first three months of the year, only 7.5% of homes that sold were private-owned, non-short sale. That is about 1 in 13.
But the market is turning. Over the past three months, not only have there been significantly more sales, but 19.3% of the sales were private-owned. That is 1 in 5.
What does that mean? Well, for the buyers, it means they are buying homes in better condition, as foreclosures tend to need much more work. For sellers, it means they are more likely able to sell without hurting their credit. But for everyone, it indicates the bottom of the market.
Two other indicators of this are: the average price per square foot (which has begun to slowly rise); and the selling price as a percentage of asking price (which also is rising, so homes are selling closer to their list price).
This blog post is not adequate to fully describe how the market has changed this summer, but I suggest you ask any real estate agent you know, and they will tell you about the increased competition for these homes. I've written several offers that were higher than asking price, only to have another buyer offer more.
This doesn't mean every market has turned, as the homes $200,000+ haven't begun to see these same effects. But the turn has to start at the bottom and work it's way up, which is where we are now. And we have the government to thank for this.