Expiration of Tax Credit Hits Bay Area Housing Market

The National Association of Realtors announced yesterday that existing home sales were 27% lower in July than they had been in the prior month. The annualized sales rate of 3.83 million units was the lowest since the NAR began keeping records in 1999.

Sales had been rising rapidly as the April 30 expiration date for the home buyer tax credit approached. The subsequent drop-off in sales was therefore widely anticipated. (The same pattern was observed with the original home buyer tax credit, which expired on November 30, 2009.) Still, the scale of the decline came as a surprise. In a survey of economists by Bloomberg News, nobody had predicted such a large decline.

Housing is far more expensive in San Francisco than in other parts of the country. Consequently, the tax credit might have been expected to have a relatively small impact on demand. Surprisingly, however, home sales fell almost as much in the City as they did in other regions. Between June and July of 2010, home sales fell roughly 21% in San Francisco. The July 2010 total (452 units) was 17% lower than the corresponding figure for July 2009 (543 units).