Everyone expected home sales to fall once the federal homebuyer tax credit ran out at the end of April, but nobody foresaw a plunge as drastic as May’s sales – a 30% fall of signed sales contracts. According to the National Association of Realtors (NAR), the pending home sales index has been increasing steadily but topped out at 110.9 in April 2010. The index dropped to 77.6 this month, its lowest level since the initiation of the index in 2001.
first tuesday take: The federal homebuyer tax credit has been borrowing from one hand to give to another, and the economy has not had near enough job creation stimulus to deliver buyers to pick up where the subsidy leaves off. Tax credits function as a bridge to span the gap between the sudden recessionary downturn in sales and the recovery which brings with it an upturn in sales, but the subsidy has become a bridge to nowhere.
Worse yet, those who would have purchased a home during the next few months instead purchased earlier when they got $8,000 back in a tax reduction. Even now that the tax credit has been extended to September 30, 2010, for homebuyers already under contract, California is simply postponing the inevitable moment when it will have to reap what has been sown: several months of gut-wrenchingly low home sales after the credit ultimately expires. [For more information on the Federal homebuyer tax credit extension, see the July 2010 first tuesday Legislative Watch.]
Home sales will only increase when jobs increase. How many of the newly employed are going to want to purchase a new home so soon after spending months barely scraping by? Everyone is saving more while building up cash reserves in the process. While more savings are not what the economy presently needs, savings will provide the required down payments for the conventional loans homebuyers will need to purchase homes in the future.
Further, optimism among brokers and agents is crucial for the real estate market’s recovery. Realistically, however, a full recovery of property sales will take years. The good news: those financially able can take advantage of lower home prices and extremely favorable mortgage interest rates — the two most important deciding factors for purchasing a home.
Re: “Pending home sales ‘fell off a cliff'” from CNNMoney.com
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Take away Buyer incentives in the current economy????? Everybody expected home prices to fall???? An, nobody foresaw sales to drop in May 2010?????
To continue to use of universals such as “Everybody and Nobody” Universal statements are never true statements.
Real Estate History 101. Here we go,…. When Allen Greenspan in the 1990’s raised mortgage interest rates up 7 times in one year it stalled the real estate economy for years.
For the Bernaky to not know Real Estate history is sad and shows poor judgement and lame critical thought on his part. He was a Professor in a College or University somewhere with a backround in Economics. Laughable, but the sad truth is, these are the mental giants in charge of the US economy.
The government lending policies blew the the chance for real estate sales to occur in the 3rd and 4th quarter of 2010, because the government took away the buyer incentive for property virgins to enter the real estate market. The economic outlook for 2011 for the 1st and 2nd quarter is going to be quite eventful to watch.