November 23, 2009
Pace Of U.S. Existing Home Purchases Up 23.5 Percent YOY
The pace of existing U.S. homes purchases hit a 6.1 million annual rate in October, up from a 5.54 million pace in September and up 23.5 percent on a year-over year basis as the median price fell 7.1 percent as compared to October 2008.
Two things to consider: 1. the impact of home buyer tax credits that were originally slated to expire on November 20; and 2. the state of October 2008.
∙ U.S. Existing Home Sales Rise 10%, More Than Forecast [Bloomberg]
First Published: November 23, 2009 9:15 AM
Comments from "Plugged In" Readers
clearing inventory and price discovery ... bear or bull this is a very good thing. Of course the fly in the soup is how much of this was due to expectation of the end of the first time home buyer credit and what happens when(if) it expires.
Posted by: badlydrawnbear at November 23, 2009 10:11 AM
this is terrible news by any socketsite economic measurements. obviously just a propping up of the market by artificial means slowly delaying the inevitable collapse of all society as we know it...which will probably be considered a great thing by many regular posters here.
Posted by: anon$random at November 23, 2009 10:13 AM
Sounds right. I know that the tax credit was a big reason for us buying. Based on our experience, I suspect that the increased purchase pace will continue into December. For example, despite being in contract since August, we were not able to close until early last week. If this extended closing period holds true with other buyers, then it shouldn't surprise anyone if first time buyers made up a majority of the purchases in order to take advantage of the credit.
Posted by: yeediddy at November 23, 2009 10:41 AM
Food for thought.
In most markets, falling prices on increasing volumes is not a good sign for the future.
Posted by: JustLooking at November 23, 2009 11:04 AM
Yep this is horrible news. Now what am I going to do with the V8 Interceptor I have ready to go?
Posted by: Rillion at November 23, 2009 11:13 AM
If real estate resets to a substantially lower level, say 25% less than the 2007 peak, in a year or two following the end of the everpresent, ever -extending "temporary" home buyer tax credit, and stays essentially flat for the next five years or so following that, it won't be the "collapse of all society as we know it" and I don't know of anyone who thinks it will be. Life will go on.
Posted by: Brahma (incensed renter) at November 23, 2009 11:19 AM
This is really no surprise. The 5% interest rates + tax benefits + FHA are definitely propping up the market. I would wonder how many of those sales would have occurred after October if the old tax credit hadn't expired (e.g. the same way cash for clukers pushed demand earlier in time). Plus, I'd imagine some of the sellers are probably starting to realize they won't get their dream price, and the key to more sales volume is better prices.
Imagine if we had a more normal rate of 7%. borrowing costs would be up 40% and commensurately monthly payments would be up around 24%. The Fed and Treasury are trying hard to prevent this scenario because it would kill the zombie banks.
Posted by: corntrollio at November 23, 2009 11:19 AM
The old tax credit didn't expire. It has been renewed through June 2010. Also another $6500 credit was added for new homes, without a first-time buyer requirement.
Posted by: anonn at November 23, 2009 11:28 AM
For all intents and purposes, I'm referring to the "new credit" as the $8K for first-time + $6.5K for move-up. The "old credit" refers to the old $8K credit. I don't know the details of how the eligibility requirements changed between the new $8K and the old $8K, if any, so that's why I'm referring to them that way.
Posted by: corntrollio at November 23, 2009 11:32 AM
The old tax credit didn't expire. It has been renewed through June 2010.
this is true, but many buyers in this data set didn't yet know that the credit would be extended.
I doubt even the strongest of bulls would argue against the idea that we pulled at least some future demand forward with this ill advised tax credit.
Regardless, I personally think that we see a lesson here:
a drop in housing prices increases sales.
the increased sales helps to "clear" the market.
in other words, a drop in housing prices is no more "bad" than a rise in housing prices. left alone, the pricing mechanism is an excellent way of allocating housing!
let's see if our government can figure this out. (rhetorical, I know that they know this but refuse to acknowledge it).
Posted by: ex SF-er at November 23, 2009 11:52 AM
Oh, I think the strongest of bulls would take exception to the words "ill advised."
Posted by: anonn at November 23, 2009 12:11 PM
There have also been a lot of people buying foreclosed houses at fire sale prices. These have contributed hugely to the overall national housing price drop.
And the people doing this might surprise you. A friend of mine's housekeeper told her she was going to Vegas for the weekend. My friend told her not to lose too much money. She said, oh no, she wasn't going to gamble. She and her family were purchasing a foreclosed property there as an investment.
Little did she know.
Posted by: salarywoman at November 23, 2009 12:18 PM
If you do not think that (a) government keeping interest rates this low and essentially proclamating that they will not raise them for the foreseeable future, (b) extending the first time buyer credit, (c) creating a new buyer credit -- are not purely devised at propping up home sales and engineering a soft-landing for current homeowners and the banks -- than you are totally living in the dark. The bulls can pretend that the markets are rebounding and that we are watching a normal real estate recovery, but I have to agree with controlio that without the credits and low interest rates -- we would most likely have a far worse situation in real estate and in the Financial Institutions.
We are not witnessing a "free market" market correction so I do not think it's really fair to point at either the bulls or bears to claim victory, or any sense of entitlement. The reality is that we are witnessing a historic and somewhat unprecedented market intervention that is unequivocally impacting the market. Personally don't disagree with the policy, it just sucks for those hoping to see the market correct as quickly as it popped. Ain't gonna happen. But anyone on here that was shouting "I was right, you were wrong" should just remain silent unless you predicted the government intervention as part of your thesis/guess.
Posted by: eddy at November 23, 2009 12:22 PM
From First Trust Advisros' Brian Wesbury:
Implications: Existing home sales surged in October, are up 20% in the past two months, and are up 36% from the low in January. To put this in perspective, existing homes are now selling at a faster pace than they ever were before 2003. We think the bulk of the increase in the past several months is tied to the increasing affordability of homes. Lower prices and low mortgage rates have substantially increased the affordability of homes. Meanwhile, potential homebuyers no longer need to fear widespread deep national home price declines and should expect modest price gains in much of the country over the next couple of years. In addition, some of the recent spike in sales is likely due to the expectation (now outdated) that the federal government’s new homebuyer tax credit would expire in November. Buyers may have rushed to make offers and sign contracts on homes in August/September, so they could get the credit, which was assumed to expire at the end of November. However, the credit was recently extended into 2010, which will remove the reason for any rushed sales. The best news from the report was the decline in inventories to 3.57 million, down a million versus the peak in July 2008 and the lowest level in almost three years.
Posted by: Pronker at November 23, 2009 12:48 PM
Don't understand the half-measures. Raise the homebuyer credit to $70K and we're right back to 2006. Yippee.
Posted by: anon at November 23, 2009 1:03 PM
half measures leave open the possibility for further measures.
Posted by: eddy at November 23, 2009 1:12 PM
My current working theory is that none of the measures target the high end ($1+million) of the Ess Eff market. Eventually the high end pancakes the middle (which is superconforming limited).
Posted by: EBGuy at November 23, 2009 1:51 PM
The 5% interest rate targets all housing levels except maybe the $5M and above. Even those homes often have a commercial mortgage attached.
PS: Is there any significance to the ess eff?
Posted by: eddy at November 23, 2009 2:24 PM
Is there any significance to the ess eff?
Paying homage to the original (or did he grab it from someone else?) three dotter...
And yes, I should have noted the interest rates affect all tiers. I believe all other gov't intervention is targeted to superconforming and below. As a side comment, WaMu appears to have enabled quite a few equity extractions in Pac Heights (which went the foreclosure route); they're no longer providing those price supports.
Posted by: EBGuy at November 23, 2009 2:37 PM
But anyone on here that was shouting "I was right, you were wrong" should just remain silent unless you predicted the government intervention as part of your thesis/guess.
A few of us said that the government would just print dollars to reflate the economy. QE is obviously one of the tools they would use to get the money into the real economy. I am a little surprised they did not use some of the more effective methods from FDRs toolkit, but the current Administration is even more bank friendly than I imagined.
Posted by: NoeValleyJim at November 23, 2009 11:27 PM