Housing: The End of the Artificial Stimulus

The National Association of Realtors (NAR) reported today that existing homes sales in July of 3,830,000 units at a seasonally-adjusted annual rate was 27.2% below the sales level in June of 5,260,000 units, and 25.5% below last July, when 5,140,000 homes were sold.  Here are some of the reports and reactions:

1. LA Times -- "Many buyers who rushed to beat the April 30 deadline to sign a sales contract were closing their deals in May and June, helping to propel the market. With many of those deals now apparently closed, the market is faced with standing on its own.  Real estate experts said the tax credits led many buyers to speed up their plans to buy houses, boosting sales this spring, but sapping demand over the summer.

A few months ago "we were getting eight or nine offers on every property, and we knew that we would have a tremendous drop-off, because it was being artificially stimulated," said Gary K. Kruger, a real estate agent with HomeStar Real Estate Services in Hemet."

2. Lawrence Yun, NAR chief economist, said “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs."

“Even with sales pausing for a few months, annual sales are expected to reach 5 million in 2010 because of healthy activity in the first half of the year. To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years."

3. Nigel Gault, IHS Global Insight: All of the action earlier this year appears to have been driven by the tax credit. … The underlying path of housing sales is not as disastrous as July’s number suggests – we are now undershooting, as sales that would have happened now were pulled forward by the tax credit. But a sustained upturn will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace."