Housing recovery sputters
Hopes are dashed now that the homebuyer tax credit training wheels are removed from the market.
This post comes from Marilyn Lewis of MSN Money.
What's that hissing noise heard around the country? It's the sound of air rushing out of the housing market.
If you listen closely you'll also pick up a cracking sound: That would be hearts breaking and hopes crashing. Sellers, agents, builders, homeowners, bankers, mortgage brokers -- just about everyone except perhaps prospective buyers -- needs sales and prices to rise and the housing market to turn around. And soon.
A lot of people had let themselves hope that the housing market was turning around. Where housing goes, the whole economy goes, as we found out when the real estate-and-mortgage balloon popped.
Summer, traditionally high season for real estate sales, is already starting to look like a rout. Sales numbers for May just came in. They're dismal -- far worse than expected.
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Sales were expected to drop, of course, after the homebuyers' tax credit was removed. New-home sales were expected to fall by about 20%. They actually plunged by 33%. Only 300,000 new homes sold, the fewest since record-keeping began in 1963, says MarketWatch. Sales of existing homes fell 2.2% in May. (Still, existing-home sales numbers for May came in 19% over the same time last year.)
The problem: The removal of the federal homebuyer tax credit. The numbers of sales, if not prices, had been pumped up nicely by the taxpayer infusion. Since the beginning, in February 2009, the tax credit was responsible for 1 million home sales, BusinessWeek reports, quoting the National Association of Realtors.
Bloomberg, in an article about suspected fraud in the tax credit program, quotes the IRS saying taxpayers claimed $18.7 billion in benefits from the program. (Even prison inmates piled on, claiming $9 million in homebuyer tax credits on their taxes, reports MSN Money's Dispatches.)
The question now is: What's next for housing? With the tax-credit training wheels off, the market is wobbling again. Reports The Washington Post:
Sales of previously built homes dropped in May after huge gains the previous two months, a sign that the federal tax credit that helped energize sales at the start of the selling season has sputtered out sooner than expected.
In April, sales of existing homes had risen 7.6%, with buyers rushing to wrap up purchases before the subsidy expired.
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An aside: Many buyers couldn't get their deals closed in time to claim the credit, in part because Congress failed to reauthorize the federal flood insurance program (says KTKA News in Topeka). That held up some pending sales. Congress appears to be acting on flood insurance, now. In fact, it's even talking of extending the tax credit deadline (says Bankrate.com), but that's only for buyers who initiated purchases before April 30.
Forecasts for the near term aren't pretty:
- BusinessWeek says:
Foreclosures may reach 1.9 million this year after a record 2 million in 2009, according to Mark Zandi, chief economist at Moody's Analytics Inc. in West Chester, Pa. It would take 8.3 months to sell all available 3.89 million existing homes, the Realtors' association said.
- "It's a market that's stalling out," Mike Larson, housing analyst at Weiss Research, told The Washington Post.
- MarketWatch quotes a well-known economist on what to expect next:
"By the fall, we expect the very favorable affordability picture to start pulling people back into the market, but the next few months are likely to be very grim," wrote Ian Shepherdson, chief U.S. domestic economist for High Frequency Economics, who predicted the number precisely.
- A survey by MacroMarkets LLC that found 56% of 106 economists and other analysts surveyed are expecting home prices will decline this year, says The Wall Street Journal. Just 40% of those analysts were bearish last month.
- "We're seeing a loss of momentum" in housing demand since the expiration of the tax credit, analyst Scott Anderson of Wells Fargo Bank, told the Journal. With the job market remaining weak and foreclosed homes continuing to weigh down housing, the lull could last until next spring, Anderson says.
A lot on the line
Even the cheapest interest rates in 54 years are not persuading buyers at this point. "High unemployment, economic uncertainty, negative equity and tightened qualifications for loans are keeping people out of the mortgage market," writes Smart Spending's Teresa Mears.
Ultimately, more than just real estate is on the line. Writes MarketWatch:
The big question for housing, and perhaps for the economy, is whether housing will strengthen significantly from here. If sales remain weak, home prices could fall further, which would in turn depress consumer spending, increase foreclosures and lead to more losses at banks.
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