Home Sales Up
The government’s measures to stabilize the housing market appear to be working. What is uncertain. However, is what will happen when the government programs expire. Existing home sales rose in November to the highest level in almost three years. The better-than-expected numbers were largely driven by first time buyers rushing to buy before the expected November 30th expiration of the $8,000 tax credit. The credit has now been extended to June 30th.
The pace of home sales is currently 45 percent higher than its bottom in January, but still ten percent lower than the peak in 2005. Recovery in the housing market depends heavily on the health of the overall economy, which grew less than expected in the third quarter. The economy experienced a 2.3 percent annual growth rate in the third quarter, down from the initial reading of 2.9 percent. Experts predict that fourth quarter numbers will be even better, but the economy will decline in the first part of 2010. And that will coincide with the end of the government’s tax credit and the Federal Reserve’s debt-purchasing, so interest rates could rise. Some are skeptical about the housing market’s ability to continue in its recovery without the assistance.
With the new deadline for the tax credit, experts predict housing sales to fall in the winter and pick up again in the spring. An estimated 2 million Americans have qualified for the tax credit and another 2.4 million are expected to take advantage by the new deadline. First time buyers accounted for about half of all home sales in November, pushing sales to 45 percent above November 2008, the highest year over year gain ever.
As a whole, existing home sales rose 7.5 percent in November to a seasonally adjusted annual pace of 6.55 million, compared with a 6.1 million pace in October. Economists had projected a rate of 6.25 million. The inventory of unsold homes, meanwhile, fell about one percent to 3.5 million. At the current pace, it would take 6.5 months to exhaust supply. That is the smallest that number has been in three years. The fact that prices are continuing to fall does suggest failure for one government housing program, the plan to offer incentives to lenders for helping homeowners prevent foreclosure. The government’s goal for the plan was to help hundreds of thousands of homeowners, and to date only about 31,000 homeowners have been helped.
Meanwhile, continued high unemployment is forcing record numbers of homeowners into default on their mortgages. Banks are unloading large numbers of foreclosed homes, causing prices to freefall in many areas, especially Arizona, Florida, Nevada, and California. The national median sales price for homes in November was $172,500, 4 percent lower than November 2008 but unchanged from October. Experts caution that lenders have millions of foreclosed properties yet to hit the market, and many people are holding onto properties until prices rebound, so prices could tumble again.