October, 2009

Sales this summer jumped over 45% compared with the previous quarter — this is particularly interesting as sales activity generally slows in the summer.

In another positive sign, inventory declined compared with a year ago, according to StreetEasy.com.

“There was pent-up demand,” said Prudential Douglas Elliman CEO Dottie Herman. “People were feeling more confident and they pulled the trigger.”

Bill Staniford, CEO of PropertyShark.com agrees, saying that he’s getting very close to calling the bottom of this market.

And in a report from Reuters, a top restructuring expert is stating that more investors are likely to move capital into real estate over the next couple of years to scoop up bargains.

“A lot of the investors I’m hearing about are now thinking of shifting their focus to real estate, because that’s where they see the opportunities,” said Mark Shapiro, head of global restructuring and finance at Barclays Plc, speaking at the Reuters Restructuring Summit in New York. He adds, “That’s probably where you’re going to see capital shifting.”

Asked where in the sector these opportunities would arise, he said, “Across the whole gamut.”

The index is up once again in August… up by 6.4% over July!

And that’s not all: it’s also up for the 7th month in a row! That’s the longest winning stretch in pending home sales ever, since the index was created back in 2001! This shows a continued buyer surge is underway, especially in the last weeks of that $8000 tax credit. Buyers are writing offers all over the nation.

Looking around the country, we’ll start in the region with the biggest increases…The West!

The Pending Home Sales Index in the West rose a full 16% in August over July, and the the numbers show an increase of more than 22% over a year ago! The buyers are clearly shopping for homes all over the West, and writing contracts on those homes as well.

In the Northeast, we see another big jump. Pending Home Sales there rose more than 8% in August over July, and they’re up 12% compared to August a year ago!

There are gains in the Midwest as well. In the nation’s mid-sections, Pending Home Sales were up more than 3%, August over July, and up more than 7.5% over August of last year.

And finally in the South, smaller gains were seen in this region. Pending Home Sales there rose just under 1% in August over July, but they were up more than 8% over August of 2008.

We are seeing a disconnect, however, between the Pending Home Sales and the Existing Home Sales. In other words, many buyers are writing offers…and sellers are agreeing to the terms. But many of those ratified contracts never make it to the closing table. There are 2 possible reasons for that: the appraisal issues are still slowing down sales in some markets – the new appraisal rules, which were designed to make things better, may be making things worse instead.

And also, tougher underwriting standards for mortgages may be having an impact too. Many buyers hoping to get that $8000 tax credit may be writing offers, and later finding out they’re really not qualified for a mortgage.

Looking at both perspectives… If the tax credit is extended, Canfora believes that the same increase in real estate activity that we did have previously. Remember that closing isn’t done in 2 days — it usually takes 60 to 90 days to close… and as we’re in October the market is already showing signs that the opportunities the tax credit brought are coming to a close.

Should the tax credit not be extended, Canfora believes America would be in trouble.

The biggest area that needs attention, is financing. Financing is needed to keep the wheels turning, and without the proper financing, deals don’t close. With families stretching for every dime, they don’t have the traditional 20-25% down payment to put down on a mortgage. Updated mortgage products to help these families would also stimulate the real estate market.

First of all, let’s think about why home values have dropped over the past couple of years. Well, the primary factor would be an oversupply of housing. Too much inventory creates a vicious circle whereby values decline and potential home buyers, not wanting to buy into a falling market, sit on the sidelines and wait for a perceived bottom. This lack of demand then causes values to fall even further.

And, buyers continue to wait.

So to address this, congress created the tax credit for new homebuyers. Across the country, we’ve seen pending and existing home sales turn a corner and rise month over month, with figures much higher than a year ago — this is a much faster turnaround than was expected.

It’s undeniable to say that the tax credit has been popular. The number of first time buyers jumped 25% this year and now make up nearly half of all home sales. In fact, over 350,000 new home sales this year so far could be directly attributed to the tax credit, but it’s only recently that we’ve started to see the playing field level out.

The argument for extending the credit could be that allowing it to expire might put the recent signs of the recovery that we’re beginning to see in the housing market in jeopardy, with a rush of borrowers overwhelming lenders and settlement service vendors by trying to close before 11.59pm, Nov. 30.

Extending the credit could spur 383,000 additional home sales, including 80,000 housing starts, which would create nearly 350,000 jobs.

The idea of an extension has support from top lawmakers, including Senate Majority Leader Harry Reid, who recently endorsed a bipartisan bill to extend the existing tax credit.

In fact, some parties, including Republican Senator Johnny Isakson, are not only lobbying to extend the credit, but to expand it. The reason behind that being that expanding the tax credit would accelerate the recovery by stimulating demand among “move up” buyers, existing home buyers who want or need to move to a larger house. This could spur buying and price stability in new segments of the housing market, accelerating the economic and housing recovery.

Another reason for extending the credit might be that home purchases and purchasers also stimulate the broader economy. A typical buyer may well spend $4,000 to $7,000 more than the non-moving home owner on a house in the first two years alone.

We’re starting to see good signs in the housing market, but the market could still be considered fragile. The worry is that allowing the home buyer tax credit to expire could put that recovery at risk, bringing it down like a house of cards.