A handful of reports this week had some market observers suggesting that a housing-market recovery is underway. But, if not for government subsidies to cash-strapped borrowers, the housing backdrop would look far different.
Recently-expired tax credits have continued to front-load the data, and the reality is that home prices may not recover for years to come, a development that is likely to crimp the economic recovery in the U.S. -- unless, of course, the government decides to start subsidizing the market again.
The National Association Realtors reported Tuesday that existing home sales rose to 5.77 million on an annualized pace in April – up more than 22% from a year ago. Meanwhile, the Commerce Department said Wednesday that new single-family homes sales jumped 14.8% from March to a seasonally adjusted annual rate of 504,000. New home sales are up nearly 50% from last year.
However, the jump in both existing home sales and new homes sales can be attributed to essentially one item: the government’s first-time home-buyers tax credit.
An estimated 1.8 million Americans claimed the first-time home buyers’ tax credit since March, according to the IRS, but the data do not include Americans who will claim a credit in 2010. Lawrence Yun, chief economist with the National Association of Realtors, estimates one million buyers were brought into the market who otherwise would have waited.
Those million tax-credit recipients “front-loaded” the housing market, economists said, stealing demand from future months and putting them into 2009 and early 2010 – therefore driving up home sale activity during the recession.
Home sales heading into the original Nov. 30, 2009 deadline, and the extended April 30 deadline, show sharp increases in contracts signed as consumers rushed to meet the deadlines.
While the credit helped the market at a time when it was desperately needed, it was also was expensive -- $10.6 billion so far by latest estimates.
And, while mortgage rates are now near record lows, they could be heading higher going into the end of 2010 as bond yields rise again.
With the tax credit taking future demand, the housing market is expected to be weak through the summer. And unless broader economic issues such as unemployment are resolved, housing will continue to remain relatively weak despite evidence of stabilization, economists said.
The housing market activity continues to contain numerous points of stress, with an estimated one-third of all home sales fall under the category of distressed transactions according to NAR. Further an estimated one in ten Americans is now delinquent on their mortgage, according to figures from the Mortgage Bankers Association out last week.
Also home prices have not rebounded as much as housing activity. The S&P Case-Shiller home price index show that home prices rose a sparse 2% from April 2009, despite consistent signs of a more broadly-recovering economy, with indications that home prices may fall through the summer. Prices in troubled markets such as Las Vegas and Phoenix remain at record-low levels despite government’s efforts.
“The housing market may be in better shape than this time last year, but, when you look at the recent trends there are signs of some renewed weakening of home prices,” said David Blitzer, chairman of Standard & Poor’s index committee which oversees the Case-Shiller index. “Now that the tax incentive ended on April 30, we don’t expect to see a boost in relative demand.”
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