Tax credit may offer foreclosure buffer, analyst says

Stan Humphries, who last month predicted through an analysis of the regional market for the Herald-Tribune that a new wave of foreclosures would further depress prices in Manatee and Sarasota counties, said Congress' move to extend the tax credit both in length and breadth could ameliorate some of the potential drop in Southwest Florida.

“We could see a bump in demand that could partially offset the increased supply of foreclosed homes on the market,” said Humphries, chief economist for the online home valuation service. “The credits are likely to bring continued stabilization in prices over this period versus the price declines that we almost certainly would see otherwise.“

Zillow released an analysis on Monday that showed home values in Sarasota-Bradenton fell 14 percent in the third quarter compared with the same period in 2008. Prices in the Charlotte County market dropped 10 percent during the same time frame. But prices in the region were near what is considered statistically flat from the second quarter to the third, which ended in September.

Meanwhile, another set of data from housing tracker Metrostudy also found some signs of life in new home construction in Southwest Florida.

Builders in the region started more homes in the third quarter than in the previous two quarters combined, and the boost was not limited to the lower price ranges, which has been where the builders who have remained busy during the downturn have focused.

There were 155 new homes started in the region at a price below $200,000 during the most recent quarter, a 9.9 percent increase from the second quarter. In the $200,000 to $350,000 range, there were 131 starts, up 4 percent. Forty-three homes priced above $350,000 were started in the third quarter, nearly double the second quarter tally, Metrostudy reported.

The company also uses finished vacant inventory as a fundamental indicator to monitor the health of housing markets. That inventory in this region dropped 30 percent in all price ranges, though the total still remains above a level of equilibrium, Metrostudy said.

A government boost

The decision by Congress to extend and expand the popular home buyers tax credit has, in some experts' views, been a critical component in the rise in sales of existing homes in the Sarasota, Manatee and Charlotte counties.

Sales rose 42 percent in the Sarasota-Bradenton market in September from a year earlier. That was on the heels of a 23 percent rise in August and a 30 percent increase in July. September sales in the Charlotte County-North Port market, meanwhile, were up 56 percent

Besides voting to extend the $8,000 credit for first-time home buyers, Congress decided to allow people who have lived in their home for at least five years to tap a $6,500 tax credit if they buy a different primary residence.

To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.

The gains, led by first-time home buyers using the tax credit and investors snapping up bargains, have depleted certain markets of homes at the lower price points from Palmetto to Port Charlotte.

But thousands of adjustable-rate mortgages in this region are expected to reset during the next 24 months. Aggravating that problem is the region's unemployment, fast closing in on 13 percent.

The resets could double or even triple mortgage payments for those with initial interest-only loans, and the job losses might portend defaults by even so-called prime borrowers, or those with the best credit.

But there also are signs that the worst might be over and that the additional help for the housing market — adopted by Congress under intense lobbying from Realtors and builders — could help. The tax credit had been set to expire on Nov. 30.

The extension “will certainly buffer us against the newer foreclosures,” said William Geller, president of the Sarasota Association of Realtors. “We are already seeing first-time home buyers coming in who weren't going to buy because it got too close to the deadline and they got cold feet.”

Some builders are seeing a similar increase in buyers' interest. Lakewood Ranch-based builder John Cannon Homes has had 42 orders for new homes or major remodelings since January, nearly half of that during the third quarter.

“We've seen a definite uptick in activity, and even more than we've seen a change in attitude and a new perspective,” said John Cannon, the custom builder's namesake. “People are having us put their plans in specs and pricing them out.”

Cannon's deals also are steadily increasing in value, from the $300,000 range to a recent project totaling some $900,000.

“People have had the means and the desire for a while, but they have been waiting out all the uncertainty in the economy,” he said. “Now that things look less uncertain they are pulling the trigger.”