Housing Market Update

From the October 2009 Forest2Mill newsletter.

Sales of existing and new homes failed to meet expectations in August, a result of concerns on the part of buyers that the $8,000 tax credit will expire before they have the opportunity to close.

Existing home sales were off 2.7 percent in August, despite lower home prices (down 2.1 percent) and mortgage rates (which fell from 5.22 percent in July to 5.19 percent in August, according to Freddie Mac).

In his statement, Lawrence Yun, the NAR’s chief economist said “Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. . . . Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can’t take a housing rebound for granted. . . . An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market.”

Months of inventory improved over July, however, falling from 9.3 months to 8.5, a 10.8 percent change for the better. Compared to this month last year, inventory has improved by 19.8 percent.

Sales of new homes continued to improve, though at a much slower pace of 0.7 percent. Inventory also improved, falling from 7.6 months of supply to 7.3 months, a 34.2 percent improvement from this time last year. Prices for new homes declined in August, falling 9.5 percent.

The pending home sales index, a measure of home sales contracts being signed, was higher than expected in August, rising 6.4 percent over July’s number to 103.8. With August’s increase, the index has increased seven straight months, the first time this has happened since the index started in 2001. While these numbers represent an improvement in the housing market overall, though Yun points out the time between signing a contract and closing the sale is lengthening “because of long delays related to short sales and issues regarding complex new appraisal rules.”

NAR’s President, Charles McMillan, and Yun both commented on the need to extend and expand the $8,000 tax credit being offered to first-time homebuyers through November.

McMillan: “We know there is pent-up demand because sales are below normal levels for the size of our population. The faster we absorb excess inventory, the sooner we’ll turn the corner on home prices, prevent additional families from becoming upside-down in their mortgages, and give Wall Street the confidence to extend credit to other sectors. Each home sale pumps an additional $63,000 into the economy through related goods and services, so the benefits of extending and expanding the tax credit far outweigh the costs.”

Yun: “All we can say for certain is sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession. Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit.”

Table 1: Housing Statistics at a Glance, January through August 2009

¹Source: National Association of Realtors
²Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
^r=Revised
^p=Preliminary

The Case-Shiller index confirmed, however, that home prices did rise in July, a total of 1.6 percent. This follows the 1.4 percent increase that the index saw in June. It will be interesting to see if August’s numbers, due out at the end of October, confirm the declines that both the National Association of Realtors and the U.S. Census Bureau and Department of Housing and Urban Development reported for the month.

Perhaps feeling the effects of the improving sales in the last several months, housing permits and starts rose slightly in August. Permits increased by 2.7 percent, and starts increased by 1.5 percent. Completions were off 5.5 percent (Table 2).

Table 2: New Residential Construction, January through August 2009

Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
^r=Revised
^p=Preliminary

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