October 23rd, 2009
The Ups and Downs of the Housing Market
There is a mini-boom in the housing market as September sales, propped up by homebuyers taking advantage of the $8,000 Tax Credit and record-low mortgage rates, beat Wall Street forecasts. But it’s difficult to say outright that the current housing market has made it through the storm of foreclosures, plummeting prices, and deserted markets we’re become familiar with in the last few years. Despite hiccups in the housing market, can we still remain upbeat? Here’s the latest news on what’s happening on the housing front.
On the brighter side
- Last September, home sales rebounded to the highest level in two years with a 9.4 percent increase, reports Reuters. These figures are better than Wall Street expected and overall show a 24 percent increase in home sales since hitting rock-bottom in January. Largely spurred by the tax credit’s looming deadline, sales are increasing also because of greater affordability and an improving economic outlook.
- Low mortgage rates have been maintaining at or below 5% for about a month now, have spurned homeowners to look into new-home purchasing and also refinancing, which was at a 38% demand increase shortly after the rates dropped below 5% in early October.
- Another positive sign: the inventory for unsold homes fell 8 percent to 3.6 million nationwide, which is at the lowest level since March 2007. Home sales are still 23 percent off-pace from the its peak 4 years ago, but if homebuyers keep biting, a decreasing pool of homes on the market coupled with the current increasing demand of home sales will foster a more robust market ripe with plump home values and active sales.
- The First-Time Homebuyer’s Tax Credit has contributed vastly to the pick-up in home sales leading up to its deadline date on November 30th, 2009. Congressional talks about extending the tax credit till June next year and expanding it to encompass all homebuyers is already hotly contested. Realtors and homebuilders state that extending the credit is what the market needs to boost prices and sales to finally get it back on track, while others argue that it will be a $16.7 billion dollar expense that will only be a band-aid on a larger housing crisis.
Yellow flags
- The housing market is still underperforming as home prices continue to drag due to foreclosures and short sales. The median price for a home in September was $174,900, down 9 percent since last year, and signals an influx in distressed properties which accounted for nearly 30% of sales in September. [But back on the brighter side, these bargain-priced foreclosure sales have contributed to the big boost in home sales.]
- Unemployment, now at 9.8 percent nationwide, is expected to hit 10.5 percent next year. More unemployment leads to more foreclosures as people fall behind on mortgages. So expect the housing market to drop further if unemployment rises.
- Congress is currently investigating questions that a possible 100,000 claims out of the 1.5 million submitted applications for the tax credit may have been fraudulent. People who hadn’t bought a home, already owned a home, were illegal immigrants, or were under the age of 18 committed fraud in trying to take advantage of the potential $8,000 rebate; one taxpayer to claim the tax credit was only 4 years old, the Associated Press reports. This could definitely compromise the possible extension or expansion of the tax credit.
Looking Ahead
There are signs of recovery in the housing market, but its spotty nationwide. The strongest market is the West with a high sales climb of 13%, while the South and Midwest have a lower rate of home sales and lower median prices. In general, metropolitan areas like Los Angeles and San Francisco are faring better in terms of home sales and home values than rural areas. So while positive trends may be popping up in the home market, it’s happening to various areas to different degrees. To pull the entire home market back up, it’s going to take the solid momentum of sales in all segments of the overcrowded market to jumpstart real and long-term economic growth.
Home buyers should be aware of a second wave of foreclosures that will hit the real estate markets. Many people that bought houses in the mid-2000’s used ARM’s that had 3 or 5 year interest rate adjustments. As these kick in, expect a new wave of foreclosures and pressure on home values again. If (when) the FED increase interest rates, these homeowners will be especially hit hard.