Wikinvest Wire

Existing home sales soar in September

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.
IMAGE 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.

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.
That part about a "self-sustaining recovery" is pretty funny.

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.

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Anonymous said...

Funny. Tax credits are the one addiction where the pusher ends up hooked.

Anonymous said...

Tim - you nailed it! From the WSJ:

Senate Majority Leader Harry Reid (D., Nev.) floated a new version of a popular home-buyer tax-credit extension, and aides say he aims to have a vote on the measure as part of the coming debate over extending federal unemployment insurance benefits.

The alternative proposal would continue the $8,000 credit for four months past its current Nov. 30 expiration, and gradually phase it out after that.

The value of the credit would drop by $2,000 every quarter until it halted completely by the end of 2010.

Jones said...

My niece just purchased a brand new, never-been-lived-in home in Vegas. She was unemployed for nearly 2 years. She has had a job for only 2 months working as an office admin for $12/hr. She got this home for no money down. BofA qualified her for the loan, and so did another fly-by-night lender. She chose the fly-by-night lender for whatever personal reasons she may have had.

It was a smart move on her behalf because rents are still sky high. She moved from a duplex at $1,200/month to her own, brand new house at $850 - this includes HOA and PMI. Still... who the hell qualifies a person like this for a loan? This is exactly the type of behavior that needs to end!

I'm done.

Chrystal K. said...

I hope this means the economy is picking up.

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