Home sales are up this month, but this "good news" is not going to last:
Sales of previously owned U.S. homes rose in October at a faster-than-expected pace to the highest in more than 2-1/2 years as buyers rushed to take advantage of a popular tax credit, a survey showed Monday.
The National Association of Realtors said sales surged a record 10.1 percent month-over-month to an annual rate of 6.10 million units, the highest since February 2007, from a downwardly revised 5.54 million-unit pace in September.
Analysts polled by Reuters had expected October sales to jump to a 5.70 million-unit pace from the previously reported 5.57 million units in September. Compared to October last year, home sales were up by a record 23.5 percent.
Why such a jump in the slow season for housing?
"Many buyers have been rushing to beat the deadline for first-time buyer credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," said Lawrence Yun, NAR’s chief economist.
Yun, as usual, was positive about the data:
"Existing home sales have already bottomed. Home prices are almost there. We are seeing a less of a decline in house values," said Yun.
The problem for the housing market now however, is how the extension of the housing credit is likely to be perceived. The relatively short time period that the housing credit was originally available gave it the appeal of those late night infomercials. Realtors peddling it sounded like, "You need to act now! This offer only available for a limited time. If you are one of the first 200 callers, we’ll throw in a free vegetable peeler!"
It is now clear that as long as housing is in trouble, we are likely to have a buyer tax credit. If people are not convinced that they need to act quickly before it expires, they are more likely to take their time and let the prices fall.
The "Act now!" commercials work. That’s why we see so many of them. Give buyers a chance to think about it though, they are likely to realize that they don’t really need a new vegetable peeler- at least not any time soon.
I just got one of those “Act now!” pitches from a contractor who was bidding on some exterior work on my house.
The price was more than I paid a few months ago when I had to have my water line replaced. And the guy said that if I waited to do the work next spring, the price would be 25% higher.
Knowing what I do about the contracting business — it’s quite slow these days — I just let his pitch go in one ear and out the other.
Twist,
I agree, now with the extension there will be less aggressive moves on buys. Still, it amazes me that in the purchase of a home in this market that $6-8000 dollars would motivate folks so much. I mean if $8k is that big a deal to you, should you eb buying a house in the first place?
gysc,
i agree in that, to me, $8000 would not make or break my decision to buy a home. but if you look at the low end of the market that the credit is affecting, it can equate to a year’s worth of mortgage payments (on a $100-120K home). so i can see how a young couple that rents a 2 bedroom apartment for $700/mo would find it very attractive. they could get a 3 bedroom house for the same payment…but the entire first year would be free.
Funny how the real estate fanboys don’t say anything about “pent-up demand” anymore, as in all that pent-up demand was shifted forward a few months because of the tax credit. Now that nobody is fooled by the alleged urgency, we are probably looking at a really slow offseason in residential. None of the homes in my MLS portal have moved in months, and they are priced very competitively in the 200-300k bracket.
That’s aside from all of the factors coming down the pipeline soon like option ARM resets, shadow inventory and higher interest rates. Everyone who bought for the credit are going to look like suckers in the near future unless they got a stellar deal and/or they plan to be there for a decade.