Spring Buying Season, Tax Incentives Drive Traffic

Buyers responding to the homebuyer tax credit and favorable affordability conditions boosted existing-home sales in March, marking the beginning of an expected spring surge, according to the National Association of Realtors®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million in February, and are 16.1 percent above the 4.61 million-unit level in March 2009.

Lawrence Yun, NAR chief economist, said it is encouraging to see a broad home sales recovery in nearly every part of the country, with two important underlying trends. “Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running,” he said. “The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.”

Total housing inventory at the end of March rose 1.5 percent to 3.58 million existing homes available for sale, which represents an 8.0-month supply² at the current sales pace, down from an 8.5-month supply in February. Raw unsold inventory is 1.8 percent below a year ago, and is 21.7 percent below the record of 4.58 million in July 2008.

“Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably,” Yun said. “In fact, foreclosures are selling quickly, especially in the lower price ranges that are attractive to first-time home buyers.”

A parallel NAR practitioner survey shows first-time buyers purchased 44 percent of homes in March, up from 42 percent in February. Investors accounted for 19 percent of transactions in March, unchanged from February; the remaining sales were to repeat buyers. All-cash sales remain elevated at 27 percent in March, the same as in February.

The national median existing-home price for all housing types was $170,700 in March, up 0.4 percent from March 2009. Distressed homes, typically sold at a 15 percent discount, accounted for 35 percent of sales last month – unchanged from February.

“With home values stabilizing, a revival in home buying confidence will likely help the housing market get back on its feet even as the tax credit impact disappears,” Yun said.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said buying conditions are in near-perfect alignment. “Even with tougher loan standards, historically low mortgage interest rates with affordable prices and a sense that the market is turning have created optimal conditions in much of the country,” she said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage dipped to 4.97 percent in March from 4.99 percent in February; the rate was 5.00 percent in March 2009.

Single-family home sales rose 7.3 percent to a seasonally adjusted annual rate of 4.68 million in March from a level of 4.36 million in February, and are 13.3 percent above the 4.13 million level a year ago. The median existing single-family home price was $170,700 in March, up 0.6 percent from March 2009.

Single-family median prices rose in 14 out of 20 metropolitan statistical areas reported in March in comparison with a year earlier. Five metro areas experienced double-digit increases, including San Diego, St. Louis and Boston.

Now that we’re closing in on the end of 2009 — and most people will be glad to bid good riddance to an economically brutal year — many experts are making their predictions for 2010.

Lawrence Yun, the chief economist for the National Association of Realtors, recently released his predictions for next year’s real estate market. Of course, many consumers roll their collective eyes at this, since he's an expert on the payroll of an organization that has a vested interest in keeping information upbeat. And Yun is often broiled in comments from real estate bears.

Yun, however, is a respected economist, and while one may want to take his predictions in context, he’s had a pretty decent track record. One problem with economics is that the average person thinks it’s an exact science because it appears to be all about numbers. You add, you subtract, you divide, you multiply…how hard can it be?

In fact, economics is a very divisive field because it can be much more subjective than objective. When it comes to economics, numbers are a matter of interpretation.

So, before looking at Yun’s predictions for 2010, let’s see how he did in 2009. In his forecast released in October 2008, Yun wasn’t perfect, but it would be difficult to find an economist who was.

For 2009, Yun predicted existing home sales would rise and hit 5.4 million and new homes sales would fall under 500,000. On these counts, Yun was on target. In September, existing home sales were at an annual rate of 5.54 million. That spiked to an annual rate of 6.10 million in October, which Yun is crediting to the first-time home buyer tax credit. New home sales were on an annual pace of 430,000 units in October.

On the downside, Yun saw unemployment peaking at 6.7 percent mid-year and “steadily heading down” after that. Of course, we now know that unemployment peaked at 10.2 percent in October.

A look ahead

Now on to 2010 a synopsis of what Yun predicts:

• He sees the extended home buyers tax credit creating more demand and predicts a 20 percent increase in sales over the first half of the year as compared to the first half of 2009.

• Yun says this will result in a drop in inventory of homes for sale and that we will see an increase in home values by mid-year. He predicts that the median sales price will increase 2 to 4 percent for the year and that pent-up demand for new homes will lead to a 50 percent spike in sales from historically low levels.

• As any good economist would, Yun is hedging his bets on a couple of key factors. He says sales and price increases are contingent on interest rates staying between 5 and 5.5 percent. Currently, rates are under 5 percent. He also says that the Gross Domestic Product must climb 3 percent for the year for enough jobs to be added to the economy. He says we should see positive job growth in the spring.

Overall, Yun’s predictions are for a year any would take after coming through the dark tunnel that was 2009. Whether he proves correct…well, we’ll have to wait a year to find that out.