Tuesday’s release of the S&P/Case-Shiller home price report showed that in many markets there was a sharp divergence between the price movement for the low and middle tiers and the higher tier homes.
There is a strong likelihood that this low tier bounce is at least partly the result of the widely publicized $8000 tax credit.
It’s important to note that price tiers are defined individually with the price breakout values specific to each market and reformulated, as well as seasonally adjusted, for each release.
In the Boston area housing market, possibly the best example of the tax credit fueled bounce, the seasonally adjusted low tier is currently defined as single family homes selling below $267,474, with the middle tier selling between $267,474 and $488,116 while the high tier contains everything above $488,474.
In order to qualify for the credit the following must apply:
1. The credit is for “first time” home buyers only… if you have had ownership interest in any home (including condos) anytime in the last three years you are NOT eligible.
2. The credit has income restrictions of $75,000 for individuals and $150,000 for married couples filing jointly.
3. The credit can only be used for principle residence.
4. The credit cannot be applied to the downpayment (... NOTE… some states, including MA have created programs to circumvent this item effectively lending borrowers the $8000 upfront to apply towards the downpayment… when the Federal Government pays the tax credit, borrowers pay back the state).
As you can see from the seasonally adjusted data below, homes priced below $489,000 are experiencing more than a seasonal bounce… in fact… the strongest bounce in the low tier since the decline commenced over three years ago.
Clearly, this is as a result of first time homebuyer activity.
But as you can also clearly see, the high tier has continued to fall in May dropping 1.13% compared to April, the second largest month-to-month decline seen during this housing bust.
Further, the sale pair counts are continue to decline for the entire market dropping 18.92% on a year-over-year basis firmly indicating that sale volume is headed lower.
How far this low-end bounce runs is hard to say… but it’s safe to say that the organic prices of the upper end are continuing to trend down and likely unaffected by the tax freebie.