Local real estate market watchers expected home sales to drop off after the federal home buying tax credits expired at the end of April.
But maybe they didn't expect this kind of drop.
(Source: Minneapolis Area Association of Realtors)
The newest data from the Minneapolis Area Association of Realtors shows a roller coaster dive in sales since the credits -- $8,000 for new home buyers and and $6,500 for repeat home buyers -- ended.
The thick red line shows a steep rise to the end of April as buyers rushed to grab the credits and then the drop afterward.
The credits, part of the massive federal stimulus package, helped keep the residential real estate market alive during the housing crisis. There was a lot of breath holding as folks waited for the fallout once the credits ended.
By mid-May, the Minneapolis Realtors declared, "We are pleased to announce that the tax credit deadline has officially passed and the world did not end!"
The group did project a slow summer selling season, noting that many would-be summer buyers got in earlier to get the credits. Still, this is prime home buying season.
So what happens next? The sales market has tanked temporarily. How long does that go before folks start to really get concerned?
"If year over year (pending home sales) don't really start to close the gap by the end of June I'm going to start getting nervous," Dickinson said.
"From a basic search I ran the numbers for next week should be up. So that's a step in the right direction. But the same week last year was our best week last year and we're still going to be down from that substantially."
Searching for comparisons, Dickinson looked at auto sales after the "Cash for Clunkers" car buying credits expired.
Here's a chart by the Federal Reserve Bank of St. Louis showing U.S. auto sales. That spike coming out of the gray area is the sales boost provided by "cash for clunkers." The business then swooned before showing some signs of recovery.
The cash for clunkers experience "suggests a month or two hangover is very likely, though this (housing) stimulus was going for so long that the hangover could be longer too," Dickinson said.
"Come July or early August we'll have a better feel for what the second half of the year will look like" with Twin Cities home sales, he added. "Up until then there's just too much influence from the tax credit expiration to draw any good conclusions."
Looking at the auto sales chart above, there may be one other lesson for the local housing market: Recovery is coming but it'll be a long climb back to the days before the recession.
Bonus: Brad Fisher, President of the Minneapolis Realtors group, tells MPR News the drop doesn't bode well for home prices. "We expected to see a decline. We are just uncertain now to see how long it's going to take for the consumer to realize they still have great interest rates, they still have great values out there."
Double Bonus Chris Farrell, MPR's excellent economics correspondent, posted a "good riddance" to the tax credits the day they expired, arguing, "The market shift to lower values would have been much quicker and fairer without the credit. The best policy in this case is let the market work."
Got insights into the housing market in the Twin Cities or greater Minnesota? Post below or contact us directly at MinnEcon.