With Tax Incentive Gone, Home Sellers Looking to Deal

(May 13) -- Recognizing that homebuyers need more motivation now that a federal tax credit has expired, more sellers are slashing their asking prices.

As of May 1, 22 percent of listings on the major real estate search engine Trulia.com had at least one price reduction. That's a 10 percent jump from the previous month.

Nationwide, the actual price reductions average 10 percent, but in many major cities they are well above 10 percent, according to the numbers Trulia.com released this week.

David McNew, Getty Images

Listing prices have dropped by 10 percent nationwide since the government stopped offering a homebuyer tax credit of up to $8,000 on April 30.

The federal homebuyer tax credit of up to $8,000 ended April 30 for civilians, though it won't end until April 30, 2011, for military personnel deployed overseas. The maximum tax credit amounts to about a 3.2 percent discount on a $250,000 home.

The National Association of Realtors attributed a surge in existing-home sales in March -- which rose 16 percent over last year and 6.8 percent from February this year -- to buyers responding to the homebuyer tax credit and other favorable conditions.

"Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running. The homebuyer tax credit has been a resounding success," said Lawrence Yun, the NAR's chief economist.

But in May, after the tax credit expired for most Americans, 12 of the largest 50 cities across the nation had 30 percent or more of their listings experience price reductions. By contrast, in April, only five cities had 30 percent or more listings with price reductions.

The surge in listings with price reductions from April to May was greatest in Omaha, Neb., 62 percent more; Tulsa, Okla., 27 percent; San Diego, 39 percent; and Long Beach, Calif., 22 percent.

Among the nation's largest cities, the steepest price reductions came in Detroit, where they averaged 24 percent. Average price reductions were 15 percent in Las Vegas and Miami; 13 percent in Phoenix; 12 percent in Cleveland and Mesa, Ariz.; 11 percent in Baltimore, Jacksonville, Fla., and Fresno and Oakland, Calif.; and 10 percent in Los Angeles, Atlanta, Washington, Sacramento, Calif., and Tucson, Ariz.

"With more than a year of the federal government's involvement, we are now re-entering the free market system," said Pete Flint, Trulia co-founder and CEO. "As we readjust ... we expect to hit turbulence in some markets.

"We won't know the true severity of the tax credit expiration until the conclusion of the peak home-buying season, in the summer months," he added. "Only then will we have a better sense if the U.S. housing market can stand on its own two feet."