What happens when the tax credit expires?

For the last couple of months, we’ve been turning a corner of sorts in real estate. The number of sales has increased, inventory is slowly decreasing (still high though) and foreclosures have stabilized. As the opportunity for the tax credit comes to a close on April 30th, many sellers, buyers and Realtors are wondering what would happen to the market thereafter.

Although no one has a crystal ball, one can make an educated guess as to what to expect. Below are some of the reasons I believe the market after a dip in May will continue to march ahead of 2009 in the number of sales.

1. We know that even with the tax credit in place only about 1/4 of the buyers were enticed to buy to secure the credit (study was done by NAR in late 2009). That leaves at least 3/4 of the current buyers in a state to continue shopping for a property.

2. Many of the buyers that are in the market to get the credit have waited till the last few days to write offers. Some of these buyers will not find a home by the deadline and may continue to look after the deadline. Of the offers written in next few days some will fall apart, as many are written by mediocre agents (see other posts about this very subject). Those buyers I am sure will go forward to secure another home.

3. The economy appears to be improving and more unemployed should be heading back to work. As consumer confidence goes up we would expect additional buyers to enter the market replenishing the buyers lost due to the lack of the tax credit.

4. Interest rates are at historic lows and should continue low unless the overall economy heated up considerably.

5. Down payment assistance programs and grants continue to exist. Should the market not recover sufficiently, expanding programs for the first time homebuyer could become reality.

Even though we expect sales to stay ahead of 2009, prices will still be under pressure due to the high inventory of homes for sale and appraisal issues which are a result of new rules.