Housing market predictions took a negative turn after some surprisingly lousy housing sales numbers were released.
Suddenly, instead of talking about the housing recovery, housing analysts and economists are talking about prices that could fall dramatically over the next six to 12 months. What changed?
In mid-May, the Mortgage Bankers Association announced that interest in purchase mortgages had “plummeted” nearly 40 percent since the end of April. In the weeks since, demand for purchase mortgages has continued to fall.
Then, the National Association of Realtors said that existing home sales in May dropped 2.2 percent from April, although they were still about 19 percent higher than a year ago. That number surprised many industry observers, who thought that that the deep government support for the housing industry would continue even after the expiration of the home buyer tax credits.
But that’s nothing compared to what happened last month with new construction.
The Commerce Dept. said that new construction home sales plummeted nearly 33 percent to a record low annualized rate of 300,000 homes sold. This drop was the single largest drop ever recorded. New home sales fell in every part of the country, led by a 53 percent drop in the West. The number of sales in May is dramatically lower than the then record number posted a year ago.
Are you really that surprised?
The $8,000 first-time home buyer tax credit and $6,500 trade-up buyer tax credit expired at the end of April. If you didn’t have a signed, valid contract in place by April 30, and weren’t able to close by June 30, you would not be eligible for the tax credits, unless you were a member of the armed forces with an overseas assignment or a member of the foreign service posted abroad.
The only surprise is how much the real estate industry as a whole wanted to believe that the home buyer tax credits had truly formed a bottom for the housing bust. They believed home prices, which have fallen between 30 to 60 percent, with some foreclosed homes selling for mere pennies on the dollar, had turned the corner and would once again be moving upward.
Wrong. It turns out that instead of encouraging new buyers to come out of the woodwork, the vast majority of those who used a home buyer tax credit were home buyers who simply pushed up the timetable. That means there is even less demand for housing now.
Meanwhile, the number of people being dumped out of the government’s loan modification programs, and having their applications for temporary and permanent loan modifications rejected, has grown dramatically. Foreclosures will soon start to rise, as banks begin to take back millions of homes.
Those foreclosures will start to hit the market, meaning that home prices will likely begin to fall again unless something props up home buyer demand.
What could do that? Jobs. Until the labor market recovers (and another 1.2 million long-term unemployed are scheduled to lose their unemployment benefits at the end of June), it’s unlikely that the housing market will truly recover. How could it? If you don’t have a job, it’s really tough to make a mortgage payment.
Here’s the latest housing market predictions: Some economists are now saying publicly that they don’t believe true housing demand will return until 2011, a full year from now.