Lawrence Yun, Chief Economist, NAR
Is the increase real or have the tax-credits created an “artificial” market that cannot be sustained?
Today the National Association of REALTORS(R) issued their Pending Home Sales Index Report for October showing pending sales in the U.S. rose again for the ninth consecutive month – marking the longest streak since since NAR began the pending home sale index in 2001.
As I have expressed previously, I’m somewhat cautious about getting too excited about these recent encouraging reports on the housing market as I feel we still have many challenges out there.
- Dennis Norman
For starters, the home-buyer tax credit which has clearly stimulated the market as buyers raced to buy a home to claim the credit before it expired on November 30, 2009 (it has since been extended to April 30, 2010) is just creating an “artificial” market in my opinion and we are still seeing nearly record numbers of foreclosures and mortgage delinquencies which are going to continue to put downward pressure on the market. An unemployment rate in excess of 10 percent isn’t helping either.
If you look at my chart below, you will see the rate of seasonally adjusted home sales (the red line) and the rate of seasonally adjusted pending sales (blue line) come together in October which indicates to me that the concern I expressed last month about many pending sales not actually closing may not be an issue after all. However, when we look at the actual number of homes sold this year (the green line) we see that actual sales are way behind the “seasonally adjusted rate” of sales. If I put on my “glass is half-full” hat, then I would say the gap is a result of sales taking off due to a recovery of the housing market, stability and improvement of the economy, unemployment and optimism on the part of consumers. If I put on my “glass is half-empty” hat, I would say the gap has been created by an artificial spike in sales caused not by a substantial improvement in the housing market, economy or unemployment but instead by the tax credits and will not be sustained post tax-credit. I would give you my opinion of which opinion is right but I have to go refill my glass, it’s almost empty.
Lawrence Yun, NAR chief economist, seems to agree with me that the tax-credit is the impetus behind the increased sales, but it sounds like he is more optimistic about the numbers. Yun said “home sales are experiencing a pendulum swing. Keep in mind that housing had been under-performing over most of the past year. Based on the demographics of our growing population, existing-home sales should be in the range of 5.5 million to 6.0 million annually, but we were well below the 5-million mark before the home buyer tax credit stimulus. This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.”
Yun cautioned that home sales could dip in the months ahead. “The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months. Given the lag time, we could see a temporary decline in closed existing-home sales from December until early spring when we get another surge, but the weak job market remains a major concern and could slow the recovery process.
“Still, as inventories continue to decline and balance is gradually restored between buyers and sellers, we should reach self-sustaining housing conditions and firming home prices in most areas around the middle of 2010. That would mean broad wealth stabilization for the vast number of middle-class families,” Yun said.
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