November, 2009

The gain over the past 12 months was the largest annual gain on record, meaning that sales have been brisk all year. In fact, they were so strong through 2009, the only time the index looked better was at the end of 2006.

The NATIONAL ASSOCIATION OF REALTORS® credits the September sales blast to the last-minute rush of first time homebuyers trying to beat the deadline for the $8000 federal tax credit.

The buying spree, even among first time buyers, isn’t necessarily over. The estimates there are about 3 million well-qualified renters who could buy homes, but have not yet taken that leap into homeownership.

The far Western states saw the strongest sales last month. There, the index jumped 10.2% last month and is 23.7% higher than a year ago.

The Midwest also logged brisk sales pushing the index up 8.1% in a month.

The index nudged upward in the Southeast as well, climbing only 4.9% over the August figure. That region still had a strong year as it was 22.8% higher than in September of 2008.

The only region that did not fare as well in September was in the Northeast where the index slipped by 2% from August to September, but remains 16.9% above where it was a year ago.

The NATIONAL ASSOCIATION OF REALTORS® credit’s the September sales blast to the last-minute rush of first time homebuyers trying to beat the deadline for the $8000 federal tax credit. It’s also pretty likely that the low interest rates persuaded some buyers that it is a great time to buy.

The high level of pending sales is not only good for real estate… If the strong sales stabilize home values it will have a ripple effect that will run through the entire economy. When home values stabilize, it will provide wealth stabilization for many middle class families. That, in turn, will help fuel a long-term economic recovery.

This is not to say there aren’t still some pitfalls. Foreclosures are still likely in the future as unemployment numbers stay high. And, while sales are brisk for existing homes, sales of new homes continue to struggle.

Fortunately, this buying spree, even among first time buyers, isn’t necessarily over. The NAR estimates there are about 3 million well-qualified renters who could buy homes, but are still sitting on the sidelines, perhaps waiting to jump in when the market does seem a little more stable.

The senators have hammered out a compromise that allows existing homeowners who have lived in a home for more than five years to participate. The existing program only covers first-time buyers. The extension will run from December 1, 2009 to April 30, 2010, but those with contracts as of the expiration date will still qualify as long as they close their deals within 60 days.

According to Dodd’s office, the extended credit will be available to more than 70 percent of existing homeowners.

Analysts and economic experts are predicting that we should see some turnaround in jobs and home prices next year, and while the employment and housing markets are still in recovery, the tax credit extends a little bit of an economic bridge to recovery. On the job sector front, the tax credit extension is folded into a bill that would extend unemployment compensation, providing additional weeks of emergency unemployment benefits across the country.

Prolonging the tax credit is not only being welcomed by buyers and sellers, but also industry leaders, financial institutions and home builders, all of whom benefit from economic strength in the real estate market.

And we also all know people out there who wanted to take advantage of the original tax credit, but we’re stymied by the deadline. Senator Isakson has said, this extension is a once in a lifetime opportunity, and if you want to take advantage of it, now is the time.

But with the above-expected economic growth, the good news on the economy poses a question. How to keep it going? As we can see, in the last quarter we’ve gotten back out to the mall, home construction has resumed, and business capital spending has stopped declining. And what needs to be done to continue on this roll? Well, the extension of the homebuyers tax credit could be just what the doctor ordered while those shaky legs become steadier over the next few months and the glass finally fills up beyond half full.

Things on the real estate front were really bleak at the beginning of the year. Several banks had received a bailout from the federal government and several others were teetering on the verge of bankruptcy. Much of this was related to the banks books, which were overloaded with poor loans. Credit had seized up because the big banks were afraid to extend themselves any further while they worked on stabilizing themselves. Even those people who wanted to buy property thought it was going to next to impossible to get a loan under those circumstances.

Foreclosures were high, jumping by more than 80% in 2008, and the crisis that started back in 2007 did not seem to be slowing down at all. Housing prices in much of the nation, but particularly in Florida, California, and Michigan were in a complete freefall. All of a sudden people were finding themselves living in a house that was worth less than they paid for it. In this situation of being what they call “upside down” on a mortgage, many people were considering simply walking away. 



But now? A lot of that has changed.

This dramatic turnaround in the real estate market didn’t come about just by way of sheer luck. For one thing, the federal government did take many steps to get the market back on its feet.

One way the government tried to support home sales was by extending the now well-known tax credit for first time homebuyers as part of the stimulus package passed in February. More than 1 million new homeowners have been deemed eligible for the $8000 credit extended by the government. And the NATIONAL ASSOCIATION OF REALTORS® estimates that about 350 thousand of them would not have purchased a home were it not for that boost. Strong sales, encouraged in part by the tax credit, have helped to stabilize prices in some parts of the country.

The government has also deliberately kept mortgage rates low in an effort to lure buyers back into the real estate market and put the squeeze on banks to start making loans to qualified customers. The combination of falling prices and good mortgage rates made sense to many buyers who came back into the real estate market in big numbers over the summer. And why not? Real estate in 2009 is as affordable as it has been in 20 years.

The summer was a good one. Many economists believe that, at least in some markets, real estate markets have stabilized substantially and prices should rebound. So, while there has been much happy news to report finally, there are still areas of concern.

The tax credit will likely be extended, but what happens when that eventually does expire next year? Will the buyers again disappear? And while the recession is mainly behind us, most economists agree the unemployment numbers are going to continue to rise. Along with that, there may come another wave of foreclosures as people continue to lose their jobs. And there is also the question of what is going to happen with interest rates. As the Fed ceases buying mortgage-backed securities, rates may well drift higher, up even as high as 6%.

Winter has a way of sometimes putting a chill on the housing market. Let’s hope this winter will be a warmer one.