It should come as no surprise to anyone that follows the real estate and mortgage market news that the number of new mortgage applications have fallen week after week since April 30th when the home buyers tax credit deadline passed (buyer needed to be under contract by April 30th and settle before June 30th to qualify for the $8,000 tax credit). The Mortgage Bankers Association reported today (May 19th) in a press release that:
"Purchase applications plummeted 27 percent last week and have declined almost 20 percent over the past month, despite relatively low interest rates. The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009," said Michael Fratantoni, MBA's Vice President of Research and Economics.
New mortgage applications had spiked before the April 30th deadline. Read Diana Golobays posting on May 5th titled "Mortgage Applications Spike Ahead of Tax Credit Deadline" with reports on various sources claiming any were from a 3 to 14% increases in new mortgage applications in the weeks leading up to the tax credit deadline.
All the while mortgage rates continue to fall. According to the Overnight Average reported at Bankrate.com today (May 19th) the national 30-year fix rate mortgage rate was 4.94%, down from 5.03% the week before. The 15-year fixed and 5/1 ARMs were also down over last week.
Since the deadline showings on actively listed properties has trailed off 25% from the weeks leading up to the deadline and could decline further going into the Memorial Day weekend. The slump in showings has left some sellers wondering "what next?". If a seller did not get a contract before the expiration of the tax credit there are still a few things that they can do.
First, sellers can reduce price. Reducing price could better position the property against the competition. Buyers like deals and steals. The more the seller has to offer for a lower price than the competition, the more likely the seller is going to attract the attention of those buyers still in the market. Substantial price adjustments should be made every 30 days to keep buyer interest and stimulate traffic. It could take a 5-10% price adjustment to get out ahead of the competition.
Motivated sellers will lead market pricing.
All others will end up as followers and chasing the market.
Second, sellers can offer an $8,000 credit of their own. This could prove better for some buyers since if allowed by their lender because the credit could be paid at closing and not require the buyer to file a tax return. Therefore reducing cash to close.
Third, sellers that "have to get a certain price" should come off market. The longer a seller stays on market the more likely buyers will offer less and less for their home. Buyer psychology moves from "what's it going to take" to "what's it really worth". Homes sell for the most amount of money when they first come to the market. The longer the home is on market the "softer" the price in the buyer's mind.
While it's certain that activity will pickup again, what is not certain is when will activity resume and at what level. It will take time for a new crop of prospective buyers to enter the market ready to buy. Typically a lot of selling activity occurs in May, June and July. This year that activity may have already occurred. Sellers will therefore have to do their very best to power price and position their homes for a successful sale.
If you have a luxury condominium, townhome, home to sell at Annapolis, Maryland and want a professional consultation on current market conditions or if you are interested in purchasing a luxury waterfront or non-waterfront home in Annapolis or the surrounding area and want to tour any property currently on the market, please contact me at 410-923-3217 or e-mail me at showell@cbmove.com or visit my website at LiveInAnnapolis.com.
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