New home sales in Phoenix and Las Vegas, two U.S. markets hardest hit by foreclosures, are set to plunge as a federal tax credit for homebuying expires, according to data from real estate researcher Metrostudy.
A sample of subdivisions in both cities showed sales contracts for new homes “pulled back sharply in May and contract cancellations spiked,” Houston-based Metrostudy said in an e-mail. Would-be buyers canceled about 40 percent of new home contracts in San Diego in May, up from 10 percent in April, the company said. Data on new signings in that city weren’t immediately available.
Sales indicators fell after April 30, the last day for homebuyers to sign contracts in time for a federal tax credit of as much as $8,000 for first-time purchases and $6,500 for certain “move-up” buyers. The deadline may have hurried customers to snap up properties when they otherwise would have waited, said Brad Hunter, chief economist based in Palm Beach Gardens, Florida, for Metrostudy.
CBH Homes, a Meridian, Idaho-based builder whose average house price is about $145,000, countered the post-tax credit slump with a one-month “Tax Credit After Party.” It’s offering as much as $8,000 in savings for signing a contract in May.
“Think you missed out on the tax credit? THINK AGAIN,” the company says on its website.
“Buyers have a certain mindset,” Holly Haener, director of sales and marketing for CBH, said in a telephone interview. “They want to see that savings.”
In Phoenix, contracts in the subdivisions surveyed by Metrostudy fell almost 49 percent for the week ended May 24 from the same period a year earlier, Hunter said. More than 8 percent of Phoenix households received a notice of default, auction or foreclosure in 2009, ranking the city the eighth worst in the country, according to Irvine, California-based research company RealtyTrac Inc.
Signed contracts in Metrostudy’s Las Vegas subdivisions dropped 12 percent for the week ended May 24 from a year earlier. They climbed 220 percent in the last week of April, an indication of buyer interest in capturing the tax credit before it ended, Metrostudy said.
Las Vegas had the highest rate of foreclosure filings in the U.S. last year, with 12 percent of households receiving a notice, according to RealtyTrac.
U.S. Property Sales
The tax credit helped push U.S. new home sales up 15 percent in April to the highest annual pace since May 2008, the Commerce Department said May 26.
“We had this large spike before the tax credit expiration and now we see the downside of that,” Hunter said in an interview. “Based on this research, it seems that a post-credit pullback is under way.”
Larry Seay, chief financial officer of Meritage Homes Corp. of Scottsdale, Arizona, said demand has dropped across the company’s markets, which include Phoenix, Denver, Houston, Las Vegas, and Orlando, Florida.
“The tax credit during the first four months of the year did positively impact sales,” Seay said. “We’re seeing a bit of a fall since then.”
Meritage is prepared to weather any temporary decline because it is selling a greater proportion of lower-cost properties.
Companies should avoid price cuts or incentives that drive down already slim margins, said Jason Forrest, president of Fort Worth, Texas-based Shore Forrest Sales Strategies, a consultant for builders.
“The solution is to create a strategy and a sales message,” Forrest said.