The NAR (National Association of Realtors) reported that sales of existing homes rose 6.8 percent in March as more buyers took advantage of the homebuyer tax credit, a government incentive program that expires next week.
Since the existing home sales data does not reflect contract signings but, rather, completed transactions and the upcoming expiration of the tax credit is for the former, not the latter, there should be three more months of relatively strong sales in April, May, and June.
With mortgage rates still quite low at just over five percent for 30-year fixed loans and lower priced housing likely having reached a bottom in many parts of the country, conditions have never been better for many buyers.
Of course, the big question is what happens when the $6,500 to $8,000 government incentive goes away and interest rates revert to more normal levels. At the low end, these two factors dramatically improve affordability – by 20 percent or more.
NAR chief economist Lawrence Yun notes the following:
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 home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.
We’ll have to remember this outlook later on in the summer when, in the absence of free money from the government, home sales are expected to do what they did last fall when the first round of tax credits was about to expire – plunge.
What impact this will have on home prices remains the critical question.
Of course, it wouldn’t be surprising to see the tax credits extended again, that is, until all of future demand is pulled forward. Why stop now?
It should be interesting to see what happens with housing inventory as more sellers are likely to think “the coast is clear” and banks will no doubt be looking to unload some of their growing backlog. The current 8.0 months of supply in March was down from the 8.5 month supply in February.
Distressed sales accounted for 35 percent of the total and the share of first time buyers rose from 42 percent in February to 44 percent in March. Investors accounted for 19 percent of all transactions and 27 percent of sales were all-cash (still a very high level), both of these unchanged from the month before.
The next three months of data from the NAR will be closely watched and for good reason – failure to reproduce the sales surge seen last fall will be a clear indication that too much demand has been pulled forward while another impressive sales performance will instill confidence in the housing market.
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Let’s see. They report July sales at the end of August, so, there will be more than two months between the expected plunge and the elections in November. There’s no way they’ll just let the tax credit expire. In fact, they should just extend it by two months right after the current program expires and they’ll get another sales surge just in time for the election.
Ted – that’s probably too overtly political, but anything’s possible
Is this a month to month change (which I assume from my understanding of the chart) or a year to year one?
If the former, is it really surprising that more homes close in March than in February? Homes closing in February were deals signed in late December (christmas holidays) and the depths of winter in January, when in some places you can’t even see the homes and lawns for all the snow. Nobody loves home shopping in cold rainy weather either. My father was a builder and we just always understood that sales were down in the winter.
I’d think it more time-effective to report this kind of statistic only if they have something important to show us. A normal seasonal variation isn’t really useful news is it? It’s kind of like someone in a climate controlled office getting hourly weather updates. It doesn’t change anything.
As for year to year changes, would beating the numbers from a horrible winter of ‘09 reallybe anything useful other than showing the downward trend stopped? (which mathmatically it almost has to do) If you are used to making $100K a year and have a $20K year, is a 50% increase to $30K the next year a reason to celebrate? Or even proof that you are back to having anything approaching good times?
The data is seasonally adjusted – otherwise you’d be correct that the February to March increase is misleading.
[...] contract in advance of the expiring homebuyer tax credit next week. As opposed to yesterday’s report on existing home sales that reflect closings, new home sales figures reflect contracts signed, [...]
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