July 31--Chattanooga area house sales will take a plunge this month to 2001-02 levels following the expiration of the homebuyers tax credit, Chattanooga Association of Realtors officials said.
"Like cash for clunkers, you see sales go way up, then drop way off," said Randy Durham, the group's president.
Dr. Bruce Hutchinson, professor of economics at UTC, said a plunge in home sales and values is to be expected following the end of the subsidy, and is in fact an important part of the recovery.
"They've tried to help people hold on to their homes, but what it has done is kept home prices artificially higher than they should be," Hutchinson said. "They're papering over the reality, that those home prices are lower than what they're being listed as."
Another possible reason for the decline in buyers could be due to consumers having moved up their house purchase timetable to get the temporary tax credit, effectively stealing buyers from July to bolster June's numbers, he said.
Thus, many buyers who would otherwise be in the market have already purchased a home, a state of affairs that pumped up numbers in early 2010 by artificially propping up demand, according to Bobby Teems, Chattanooga area Multiple Listing Service president.
"I don't think anybody's really pessimistic, but to be optimistic that things are going to turn around as quick as everybody thought they were -- I don't think they are going to," Teems said.
To make matters worse, foreclosures continue to go up nationwide, which will continue to make homes difficult to sell at traditional market prices, according to RealtyTrac.
Mr. Teems said that with one in 692 Tennessee housing units receiving a foreclosure filing in June 2010, according to RealtyTrac, buyers are growing accustomed to including foreclosed properties in their search. That drives down prices.
"We're still being hit so hard with foreclosures. That tax credit was, in my opinion doing more than people realize it was," he said.
Durham agreed, saying that persistently high unemployment and regulatory uncertainty have hurt consumer confidence, an important ingredient in the homebuying decision.
"If a person thinks that they might lose their job or it could be in jeopardy, if they've got friends and family that could be out of work, it makes them not want to make a substantial purchase like a home," Durham said.
Hutchinson said that while it sounds bad, it's just an inevitable market correction that government action can only postpone
"It's not nice, people don't like to hear that. But that's what we need," Hutchinson said. "We need to get that excess inventory cleared off the market so the market can start operating again."
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