The First Time Buyer Tax Credit Has Impacted Our Market!

The number of active listings is down 23% in the last year and down 35% in the last two years (source: Metrolist). There is a lot less inventory on the market to sell. As a result, the number of sales for the entire market is down. January through August of 2008 compared to the same period in 2009 saw a 18% drop in sales volume for the Denver market.

What’s happened with first time buyers (FTB)? Generally, they are buying homes under $200K. I’d also generalize and say that most of them focus on move-in ready homes. They generally are not as active in the distress sales (foreclosure and short sale) market. There are several reasons for this:
- Preference. Many FTB want a move-in ready property. They are moving from an apartment and are used to having everything in nice condition and working order.
- Cash. They may just barely have enough money for a 3% FHA down-payment, and won’t have cash left over for paint, carpet and appliances. Move-in ready condition is a requirement for many.
- Lending. Many FTB use FHA lending. Many of the distress properties on the market are in such rough condition they would not qualify for FHA.
- Competition. Even if the FTB wanted a distress property (many need work), they might not be able to compete. Listing agents for REO property tell us they are frequently getting multiple bids in the first few days for their listings. As a bank selling a property, if you get several all-cash offers from investors that can close in a week, and an offer from a FTB that is using an FHA loan that will take 45 days to close… which offer would you take? Many FTB have been forced out of this segment of the market.

Thus, if you want to get a sense of how FTB are impacting the market, I’d look at the trend of sold homes under $200K that are NOT distress sales.

Interestingly, while the overall market has had a 18% drop in sales volume, this segment (under $200K, non-distress sales) is up 7% in sales volume (Jan-Aug 2008 vs. Jan-Aug 2009). The competition is making homes in this segment sell faster than the overall market. The average days on market (DOM – time to get an offer) declined from 107 days (Jan-Aug 2008) to 86 (Jan-Aug 2009). In that same time, the overall Denver market DOM declined from 101 to 100.

Another way to see the impact of the first time buyer tax credit in this market is the average discount. For the homes under $200K, the average discount declined from 2.6% (Jan-Aug 2008 vs. Jan-Aug 2009) to 2.2%. For the homes over $200K, the average discount increased from 2.7% to 3.0%.