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However, if many buyers artificially inflated their prices to take advantage of the credit, that price drop might occur faster in many markets.

Prices Fall in the Wake of the Tax Credit

Now that the homebuyer tax credit has passed into history, many are starting to wonder whether many buyers were tacking the value of the credit onto their sales price. Prices now are falling in many markets and had buyers waited until the credit expired, they could have bought the same house without Uncle Sam’s help.

The National Association of Realtors reported last week that in the first quarter, 91 out of 152 metropolitan statistical areas reported median prices for existing single-family houses were higher than they were a year ago. Some 29 MSAs experienced double-digit increases. NAR chief economist Lawrence Yun credited the homebuyer tax credit for boosting sales in the opening months of the year.

Sales activity is down in many markets, like Albany, NY where showings are half of what they were in April tax credit expired in the first week of April, and fears have existed for months that the end of the credit will spur a decrease in sales that could lower prices as much as 5 percent over the next year or so.

However, if many buyers artificially inflated their prices to take advantage of the credit, that price drop might occur faster in many markets.

Trulia recently reported that the percentage of listings with at least one price reduction increased from 10 to 22 percent during the final week of the tax credit. Sellers slashed a total of $25 billion from their asking prices for listed properties.

“With more than a year of the federal government’s involvement, we are now re-entering the free market system. As we readjust to the free market, we expect to hit turbulence in some markets,” said Pete Flint, Trulia co-founder and CEO. “We won’t know the true severity of the tax credit expiration until the conclusion of the peak home buying season in the summer months. Only then will we have a better sense if the U.S. housing market can stand on its own two feet.”

Trulia said many metro areas experienced major increases in reductions. The most significant was seen in Omaha where price reductions surged 62 percent. San Diego was the next highest, posting a 39 percent increase in price reductions.

In addition, Trulia said 12 of the top 50 cities across the U.S. saw price reduction levels at 30 percent or more, up from just five cities the previous month. Price reductions were the highest in Minneapolis, where 40 percent of home listings experienced at least one price cut.

The last time Minneapolis reached the 40 percent mark was in December 2009. According to Trulia, no other major U.S. city has reached a level this high since it began tracking home price reductions in April 2009.

In Charlotte, NC, Realtor Dave DiCecco sees another reason for prices to fall. “A lot of people who were ready to buy but might have been a couple of months out decided to cash in on the tax credit now rather than wait and lose the money. Thus, sellers that have to sell or want to sell are probably going to be more motivated to negotiate a deal with you right now.”


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