Dealing with the Tax Credit Hangover

I wanted to provide a market update, and a follow-up to my previous message from May 22, 2010. The preliminary stats are in for the month of May, and things are lining up like I predicted. First of all, just to clarify, when you hear “sales” in the media, they could be referring to closings or to new pending sales that may or may not have closed yet. What I expect you to hear in the media about our local market for Bluegrass homes is that May sales are up drastically compared to the previous month and the previous year…that news will be referring to closings that occurred in May, most all generated before the tax credit deadline. The news in June will be the same…huge increases in sales should be expected, but again, those will be closings of pending sales that mainly went pending prior to April 30th. While this is good news that closings are up, you and I are more concerned about how much business we’ve seen since May 1st, when the tax credit deadline passed.

As of right now, May pendings are at 524 units, pretty close to what I predicted in my May 22nd blog. To put that in perspective, here are the historical numbers for May pending sales:

May 2009: 894

May 2008: 863

May 2007: 1023

May 2006: 1090

May 2005: 1023

May 2004: 931

May 2003: 963

May 2002: 857

Over the years, June pending numbers have been very similar to the May numbers, and I expect we will see a pending month for June 2010 very similar to May 2010…much lower than normal. I still anticipate that we will work through this bubble by the end of summer, and there could be some short term effect on pricing, as sellers anxious to move their properties lower prices to attract a limited number of buyers. I don’t expect any long term negative effect on home values for our market though. Interest rates remain at near historical lows, so hopefully that will help keep buyers in the game.  As always, let me know if you have questions, I will keep you posted!