Free Markets, Free People

Housing market sinks after tax credit ends

Not good news for a market that struggled even with the credit. The underlying weakness of the housing market again seems to be showing itself. And that’s not good news for the overall economy either. Diana Olick takes you through the numbers:

Everybody take a nice long look at today’s Pending Home Sales Index from the National Association of Realtors, because it’s just about the last positive picture we’re going to see for a while.

Those numbers she’s talking about show up in the May and June reports, but then she says, “look out”:

This index is based on contracts signed in August, and that’s how the credit was set up; you had to sign your contract by April 30th and close by June 30th in order to get your $8000 if you’re a first time buyer and $6500 if you’re a move up buyer.

And then came May, traditionally the height of the spring housing season.

Mortgage applications to purchase a home began to sink. Now, four weeks later, mortgage purchase applications are down nearly 40 percent from a month ago to their lowest level since April of 1997.

This is another indicator of a weak economy that still hasn’t yet sorted itself out yet. While the tax credits certainly helped sell some houses, it also hid that weakness that still exists. Look for the July report (Pending Home Sales Index) to again show we have a long way to go to full recovery.



13 Responses to Housing market sinks after tax credit ends

  • It is also likely indicative of what happens when the government gets involved in industry.  The tax credits likely didn’t create much “new” home purchases but instead just pushed them forward and cannibalized the normal sales that would’ve shown up in May.

  • The tax credit for buying a house produced a spike that pretty much only brought demand forward.  If we look at auto sales, we see the same thing.  There was this nice big spike in sales during “cash for clunkers”, but the fall off after the program expired was so great that the graph of the before and after sales was essentially a straight line.  All cash for clunkers did was spend a lot of taxpayer money to benefit a few with zero effect on GDP.  Keynesian economics anyone?

  • HOusing prices need to come down.  they are way too overinflated.  If it is good for the economy for fuel and food prices to come down, why not shelter?  A house is primarily a place to live, not an investment.  More people would be able to afford homes if they were cheaper.  We caqnnot base a sustainable economy on constantly rising home prices. 

    • The idea of houses as investment is a post WW2 idea based upon returning GIs, the GI bill, and Freddie / Fannie.
      It is just that Clinton put it all on steroids along with CRA ’77, and we have a bubble within a bubble, and a population who thinks houses are investments. My dad was born in 1915, and he knew better. I was born in ’63, and thought better of it myself until in 2005 (gulp) I took the plunge. Everyone around me (except my dad and other old timers) was pushing the “house is an investment” idea that was true until the bubble burst.

      Now, we have a lot of people who are dependent on house prices rising. Myself included. Getting squared away will involve pain. I think few in my position appreciate the reality that, really, houses are not investments.

      It is kinda like social security and medicare, with all those who paid in but someone will get left holding the bag.

    • “A house is primarily a place to live, not an investment”

      Oh, the horror!!! Blasphemy most foul!!
      Who are you to disagree with millions of real estate agents, financial advisors, developers, etc.?

  • So… we need to get in the helicopter and dump more money out???

  • It is pure idiocy to think the housing market is going to ‘recover’ any time soon. When a bubble pops you cannot reinflate it. Without the rampant speculation that took place the demand for housing is just not going to be as high. In 2005 40% of new home sales were for second homes, and in 2007 30%. That was just not sustainable.

    The sooner all those bankers, political hacks, etc. accept reality and write off their losses and move on, the better off we will all be.

  • noting that Mr. Gore established the $1 billion Generation Investment Management LLP to invest in assorted green technologies, assisted by Goldman Sachs veteran David Blood.
    “There was, Mr. Gore told everyone, a climate crisis, and in the process, he grew rich, hailed [as] the first ‘carbon billionaire’ for his various investments,” Mr. Caruba continues. ” As bad as the bursting of the housing bubble has been, the next bubble will be a very green one. And, at the heart of it will be the Nobel Peace Prize winner, Al Gore, and his partner in crime, the U.N. climate change program.
    If Al Gore and Tipper are legally separated, it will likely provide a measure of protection for the millions he has. This, I suggest, is probably the real reason for the separation. It is as coldly calculated as his global-warming lies. Even their forty-year marriage must be sacrificed,” Mr. Caruba says.

  • Government tinkering in the housing market is far from over.
    I’m trying to buy a house and I’ve learned a few things.  I don’t know how much of this is deliberate and how much of this is an unintended consequence.  But mortgage companies now get appraisals through a 3rd party broker.  They are bound by the appraisal.  From my own experience and other’s experience, these appraisals are coming in low.  Its like they take a good appraisal value and list 80 or 90% of it.  I suspect the appraisers now have incentive to lowball the appraisal.  The consequence is that your mortgage is now based off of 80% of the home value and you have to come up with the other 20%.  So if you were already intending 20% down to avoid PMI, you’re now doing 40% roughly.
    Its forcing people to put too much down, causing people to walk or the seller to come down in price.  Neither are good for the housing market at the moment which in some places is depressed and not just no longer over inflated.
    Its like a mechanism to stall home prices forever.  Perhaps even drive them down.

  • United States pending house sales rose in April wildly as buyers signed contracts to gain a government tax credit. The National Association of Realtors’ measure for pending sales of used homesrose by 6.0% to 110.9 in April, the organization said Wednesday. The gain was the third consecutive one. Economists queried by Dow Jones Newswires had expected pending home sales would climb in April by 5.0%. First-time home-buyers raced to beat the April 30 deadline for the tax credit. Lawrence Yun, NAR’s chief economist, said sales this spring seem as strong as those last fall, before the original expiration date.