Arkansas Realtors Association: With federal credits expired, what now?

Editor’s note: This commentary is provided by Ethan Nobles, spokesman for the Arkansas Realtors Association. The final push by homebuyers to take advantage of a federal tax credit before it expires likely helped keep Arkansas and Fort Smith regional home sales on a positive track during April. The number of new and existing homes sold in the January-April 2010 period in Crawford, Franklin and Sebastian counties totaled 590, up 1.8% over the same period in 2009. Nobles comments about what may be next.

Now that the first-time and repeat home buyer tax credits have expired, everyone from learned economists to the National Association of Realtors (NAR) is predicting slump in the housing market in the months to come.

The tax credits ran out at the end of April and they undoubtedly had an impact on sales in Arkansas. Through April, there were 2,332 single-family, new and existing homes sold by Realtors through multiple listings services throughout Arkansas – up 24.1% from 1,879 homes sold through the first four months of 2009.

NAR Chief Economist Lawrence Yun said he figures on at least a few down months — as far as sales go — now that the tax credits have ended. It’s hard to argue too much with that logic — we’ve been operating under one form of tax incentive for home buyers or another since 2008. When you remove such an incentive — first-time buyer received as much as $8,000 and repeat buyers got as much as $6,500 — it only stands to reason that sales will drop as a result.

Justin Moore, president of the Mortgage Bankers Association of Arkansas, said there are at least a couple of things out there that should keep buyers interested: unexpectedly low interest rates and lower list prices.

Back in November 2008, the Federal Reserve announced a program to purchase mortgage-backed securities. They cut that program off in March of this year after spending $1.25 trillion in the mortgage-backed securities market.

The Fed’s action helped keep mortgage rates low, of course, and many speculated that interest rates would increase again after the program ended. Instead, the average mortgage rate on a 30-year, fixed interest loan has remained below 5%.

Why? Economic trouble in Europe has prompted investors to look for safer investments, such as the U.S. mortgage-backed securities market. That private investment has picked up where the Fed left off — higher investment in mortgage-backed securities translate into less risk, lower yields and falling interest rates.

Moore said no one is sure how long investors will flock to the mortgage-backed securities market, so there’s a sense of hurry up involved as those low interest rates might not last long.

But buyers should be attracted by something other than low interest rates — falling list prices. Average list prices started at $220,697 at the first of the year and fell to $218,519 by June 8 in central Arkansas, the Fort Smith/Van Buren area, the Jonesboro area and northwest Arkansas.

Lower interest rates and falling prices, Moore said, may be enough to mitigate some of the drops in sales that are forecast over the next few months. Naturally, we at the Arkansas Realtors Association hope things work out that way.

At the very least, people in a position to purchase a home through the summer season — typically the best time of the year for housing markets — stand to pick up some homes for less money than they could have a couple of years ago and get a great interest rate, to boot.