Economy showing signs that housing is improving

by WOHe

From the NAHB — Getting a good read on housing has been complicated in recent months by the lingering effects of the home buyer tax credit and its expiration. The tax credit pulled sales forward as buyers sought to qualify for the credit before the deadline for signing a sales contract at the end of April, leaving the pool of prospective home buyers severely depleted.

Now there is early evidence that market demand is in the process of being restored by historically low mortgage rates and affordable house prices.

New home sales peaked in April at a seasonally adjusted annual rate of 422,000, their highest level since September 2008. In May, they fell precipitously to 267,000, their lowest level since the Census Bureau started reporting these figures in 1963.

Sales in June rebounded to 330,000, an indication that buyers are returning to the market. Although this was a healthy increase, it still left sales at the second lowest level ever recorded. NAHB is forecasting further improvement in coming months as mortgage rates remain low, house prices level out and job growth continues.

Meanwhile, the inventory of new homes fell to 232,000 in June, a level last seen in 1968. Since then, the number of U.S. households has grown by more than 90%. As demand returns, a larger inventory will be clearly needed and bode well for residential construction, dependent upon banks increasing their lending to builders again.

Since their recent peak of 5.06 million In April, sales of existing single-family homes declined 1.6% to 4.98 million in May and 5.6% to 4.7 million in June. This was a bit surprising since the closing deadline to qualify for the tax credit was originally June 30.

The argument for extending the deadline to Sept. 30 was that a crush of credit-related sales had led to a backup and pushed closings beyond June. If this is what actually occurred, then it is a possible explanation for the sales decline in June and suggests that existing home sales should not deteriorate further in July and August as the marketplace adjusts to the fading tax credit.

The National Association of Realtors Pending Home Sales Index , which is comparable to new home sales since it is based on contract signings, plunged 29.9% in May and fell an additional 2.6% in June. The index was down 18.6% from a year earlier, roughly in line with a 16.7% year-over-year decline in new home sales in June.

These declines represent the expected adjustment to the expiration of the home buyer tax credit. As we move beyond the tax credit, the true picture of the underlying market will begin to emerge by July or August.

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