My friend Joe Manausa from Tallahassee just wrote this great post on the National Association of Realtors spin on the recent housing numbers.
We saw a similar situation here in Cobb County Ga. Prices through April did pretty well but I think it all artificially fueled by the now expired tax credit.
There are currently 980 Cobb foreclosure listings in the Marietta Daily Journal. Not all of these will end up foreclosing but many of them will. Add to that all of the current short sale listings, divorce, job transfers and then normal, traditional listings. It just does not translate to any meaning market absorption that lead to a decrease in supply.
Every month on the 25th, the National Association of REALTORS® releases the Existing Home Sales Report which includes single family detached homes, condominiums, townhouses and co-ops. Of all the real estate reports that the NAR produces, this one best identifies the strength and direction of the national housing market.
The April Existing Home Sales Report was positive, showing a 7.6% increase over April of the previous year. Lawrence Yun, NAR chief economist, said the gain was widely anticipated.
“The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”
The national Existing Home Sales Report jibes with what we are measuring locally in the Tallahassee real estate market. Actually, the Tallahassee housing market saw a 35% gain in year over year home sales.
Future Outlook For Existing Home Sales
As we saw in the report, Yun expects some “temporary fallback” due to the ending of the Homebuyer Tax Credit, but I think this might just be a gross under-estimate of what will occur. Based upon our measurement of the real estate absorption rate in Tallahassee, it will come down to how aggressively home sellers work to motivate the thin pool of buyers in the market.
Yun further adds:
“Although inventory levels remain above normal and much of the gain last month was seasonal, the housing price correction appears essentially over,” Yun said. “In fact, a majority of the markets have seen price gains recently. A return to old-fashioned responsible lending and buying will help the housing market avoid disruptive and painful bubble-bust cycles.”
This is market spin at its finest. In the very same report where he acknowledges that inventories are rising, he also predicts the end of the housing price corrections? I think not.
Twisting The Truth About The Impact Of The Homebuyer Tax Credit
I have reported many times in the past that the end of the Homebuyer Tax Credit will result in a very predictable rise in the median home price in the U.S. We must remember that real estate appreciation cannot be measured by tracking median home price averages, it must be tracked by measuring a sampling of home sales and comparing them to previous sales of the same properties.
- The Homebuyer Tax Credit stimulated the bottom end of the market more so than the top, thus creating a drop in the median home price in the U.S.
- The end of the Homebuyer Tax Credit will end the run on the lower end of the market, thus resulting in a rise in the median home price in the U.S.
- The NAR will use this phenomenom to announce “Homes are appreciating” when in fact the balance of the market is just being restored
- Home prices will continue to drop, even as the median home price returns to a higher level
- A simple study of Supply and Demand in Housing is a better way to forecast future values in real estate
When we use median home price movement in the US, we are not comparing “apples to apples,” rather we are tracking the current trend of what home buyers are choosing. The median home price reports do not report the changes in the median home size and the median home amenities, it just reports what buyers are buying.
If you really want to know where values are heading, you have to study the relationship between supply and demand in real estate. Just as is the case in any commodities market, the over-supply of homes will pressure home sellers to drop their prices to attract more buyers. Housing inventories are rising, both locally and nationally, and this anticipated market movement will bring even more pressure to home values.
If you have a home to sell, sell it now. With prices dropping, waiting only means that you will get less in the near future. If you do not need to move now, settle in and enjoy your home. Take your home off of the market and “do your part” in reducing the supply of homes for sale. Home values will start to appreciate (when the housing market hits equilibrium), and you can then decide to sell your home when the value recovers to where you need it to be.
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