Friday, October 23, 2009
The National Association of Realtors reported that existing home sales surged in September, up 9.4 percent from August, as buyers rushed to sign contracts that would close before the current home buyer tax credit expires on December 1st.
Industry analysts say it's not the tax credit itself that spurs buyers to action but, rather, the looming expiration of the government handout. If that's really the case, perhaps Congress ought to rethink this program and only announce a three-month extension, then announced another three month extension when that one expires, and so on, until the housing market has made a full recovery.
Hopefully, all of the buyers who were cajoled into action won't be too disappointed when the government finally removes this support which, as compared to low interest rates and government backing of mortgages, is surely the most unnatural of the lot.
Nonetheless, September was a good month for real estate sales and inventory is really starting to clear as sales jumped to the highest rate in over two years, up to 5.57 million units (annualized) from a rate of 5.10 million in August. On a year-over-year basis, sales are now up 9.2 percent.
Lawrence Yun, NAR chief economist had these comments:
Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home. We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.That part about a "self-sustaining recovery" is pretty funny.
Despite spectacular gains in the stock market, principally from the financial sector recovery, most of the 75 million home owning families have more wealth tied to their homes. Home values could soon turn consistently positive and help the broad base of middle-class families, but we are not there yet. We’re getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy. Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history.
There is nothing self-sustaining at all about the recent increase in sales
And, wasn't the focus on "housing wealth" one of the biggest reasons why we had such a huge housing bubble and bust?
Can we really just go back to that mentality?
Apparently so, at least as long as the U.S. government is underwriting it...
Inventory is rapidly shrinking after a long stall in processing foreclosures and the recent sales binge. Total housing inventory fell from a 9.3 month supply in August to just 7.8 months in September, not far above the historical average of about five months.
The important question at this point is what happens when low interest rates and tax credits are no longer available and both sales volume and prices are left to seek their own levels.
Current buyers might be surprised what those price levels will be...
Last month, the median price for an existing home was down 8.5 percent from a year ago to $174,900 with lower priced, distressed property sales continuing to play a large role in the overall market.
Given all the publicity on the subject in recent weeks - both good and bad - it should be quite interesting to see what happens with the home buyer tax credit extension now being debated in Congress.