The end of the tax credit brought about a significant decline in first-time homebuyers in April, the heart of the 2010 home buying season. However, repeat buyers picked up the slack, producing a large increase in sales for the month.
Existing-home sales increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, and are 22.8 percent higher than the 4.70 million-unit pace in April 2009. Monthly sales rose 7.0 percent in March, according to the National Association of Realtors.
The latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions found that 43.4 percent of April's home purchase transactions were attributable to first-time homebuyers, a significant drop from March's figure of a huge 48.2 percent. For the winter months of January to March, first-time homebuyer participation had been growing at a rapid clip; April's data represents a clear reversal in the trend.
Although first-time homebuyers had until April 30 to sign a home purchase contract (and close by June 30) to qualify for an $8,000 tax credit, the new survey results show that first-time homebuyers were reducing their activity even before hitting that deadline.
"We were surprised to see the early decline in first-time homebuyer participation," commented Thomas Popik, research director for Campbell Surveys. "When the tax credit was expected to expire last November, we saw a peak of first-time homebuyers in October. Now the first-time homebuyer peak appears to have occurred not one month, but two months early."
Existing or current homeowners picked up the slack from first-time homebuyers, expanding their share of the home purchase market from 33.5 percent in March to 38.7 percent in April. Current homeowners qualify for as much as a $6,500 tax credit that also expired April 30 for purchase contracts.
An NAR practitioner survey found that first-timer activity increased in April. First-time buyers purchased 49 percent of homes in April, up from 44 percent in March. Investors accounted for 15 percent of transactions in April, down from 19 percent in March; the remaining sales were to repeat buyers. All-cash sales stood at 26 percent in April; they were 27 percent in March.
Separately, the Campbell study found that the proportion of damaged foreclosed properties or so-called real estate owned (REO) sold during April plunged. Damaged REO accounted for 15.4 percent of transactions in March, but only 12.8 percent in April. One reason for the drop in damaged REO may be increasing numbers of short sales.
Short sales – where the home is sold for less than the mortgage amount outstanding and with lender approval – represent a way to resolve homeowners in default without going through the foreclosure process. Short sales were the largest portion of the distressed property housing market in April with 17.9 percent, the survey found.