The weak economy, unemployment rate, tightened lending practices, and high foreclosure numbers have not helped the housing market in 2010. In August, The National Association of Realtors said that its seasonally adjusted index of sales agreements for previously occupied homes fell 2.6 percent to a reading of 75.7. This was the lowest on record since 2001 and down almost 19 percent during the same month last year.
But according to Dr. Mark Dotzour, the chief economist at the Real Estate Center at Texas A&M, “The year-over-year decline in existing home sales will be the result of comparing months when there was no tax credit with those from a year earlier, when the tax credit was artificially increasing sales.”
In 2009 the government offered first-time home buyers an $8,000 tax credit that went into effect in January of 2009. It was offered through November 2009 and then late in the year, it was extended to include home sales with contracts written until April 30, 2010, and closed by June 30 (extended to September 30). Also, in November of 2009, a $6,500 tax credit was offered for qualified move-up/repeat home buyers which allowed for home sales with contracts written until April 30, 2010 and closed by September 30, 2010.
After home buyers and real estate agents fully understood the tax credit, response grew and home sales flourished in September, October and November 2009. After the tax credit was extended to April 2010 and more people were included with the addition of the $6,500 existing repeat home buyer credit, sales for the spring of 2010 rose dramatically with March up 18 percent, April up 28 percent and May up 18 percent over the same months in 2009.
But in May 2010 the market saw a dramatic fall of pending home sales. June and July saw a considerable drop in home sales as well. For example, in July 2010 sales in Texas were down almost 25 percent from July of 2009.
Unless another housing tax credit is instituted, Dr. Mark Dotzour predicts that an accurate reading of the housing market conditions may not occur until June or July of 2011.
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According to a June 15, 2010 CNN Money article, “The nation is simply not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, an annualized rate and less than half the long-term run rate needed to meet the nation’s natural population growth.” Along that same vein, Brian Wesbury, chief economist at First Trust Advisors said in an interview with Steve Forbes, “We need one and a half million houses per year just to keep up with population growth.”