12/28/2009

Sharp jump in home sales

After surging 10% in October, sales of existing homes jumped again in November, growing 7.4% compared with October to an annualized rate of 6.54 million units, according to the National Association of Realtors.

"This clearly is a rush of first-time buyers not wanting to miss out on the tax credit," said NAR's chief economist, Lawrence Yun.

November was originally going to be the last month in which sales to first-time homebuyers would qualify for a federal tax credit of up to $8,000. However, that deadline was extended through June.

In addition, the tax credit was expanded to cover people who already own a home. They can qualify for a $6,500 tax credit if purchase a new house before the end of June. That should encourage "trade-up" buyers.

The strength of sales in November surprised the industry. A panel of experts compiled by Briefing.com had forecast month-over-month sales growth of just 2.5% to 6.25 million from 6.1 million a month earlier.

The sales total was also a huge improvement over a year ago. Sales rose 45.7% over the paltry annualized rate of 4.49 million units during November 2008.

The contribution made by first-time buyers is evident in a separate survey NAR conducted of its members. They estimate that 51% of sales in November were by newcomers to the market, up a point from 50% in October. Normally, first timers account for about 40% of sales.

Also propelling sales higher were rock-bottom interest rates. The average for a 30-year, fixed-rate loan during the month was just 4.88%, down from 4.95% in October and 6.09% a year ago.

With rates that much lower, homebuyers can save more than $150 a month on a $200,000 mortgage.

The industry expects home sales to slacken December, partially because of the tax credit's originally scheduled demise. That caused some buyers to push up their closing, stealing sales from December.

However, sales will not fall off a cliff, though, according to Walter Molony, a NAR spokesman. "The psychology seems to be turning around," he said. "Potential buyers, who had been staying on the fence, now believe we're at or near the market bottom."

Source: CNNMoney.com

P4P Comment

The rush to take advantage of Government tax credits has obviously something to do with the recent big increase in home sales. That and the still very low interest rates on mortgages. But whether this increase in activity can be sustained at the same rate is doubtfull.

There is a “shadow inventory” of homes that could hit the market soon. These are properties being held back by Banks and lending institutions that haven’t been put on the market yet. Plus homes whose owners who can’t afford re-sets on their mortgages. This is likely to bear down on prices.

However, effect will vary greatly from area and type of foreclosure. The supply  of subprime foreclosures has been in decline for some months now. And areas without a lot of new condo building is likely to be less affected.

The Detroit colonial style properties that predominate in our listings bottomed in price back in the summer and are on their way up.  Increase of foreclosures on properties further up the price chain and in condos is unlikely to affect their value as supply is limited and demand specific for these type of properties.

Buying well below build cost on good 3 to 4 bedroom homes in decent locations is hard to beat.