Home Sales’ Progress Shows Recovery Near
It’s a sluggish revival for existing home sales — driven in part by foreclosures — but we’ll take it.
By Jerome Idaszak, Associate Editor, The Kiplinger Letter
July 23, 2009
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The string of increases in sales of existing homes for April, May and now June as reported by the National Association of Realtors (NAR) is further evidence that the economic recession is nearing an end.
In our recovery index, of the six key indicators we’ve identified, housing is the second one to turn “all green,” following interest rates. When three of the six have turned from all red to all green, we will be convinced that the recession is over.
Home sales activity is a key indicator of the economy’s health because buying a house involves such a large commitment of funds, reflecting confidence about the future. Rising home sales also show that banks are willing and able to lend, which is another requirement of a healthy economy.
The good news on sales joins other favorable housing signs. Starts of single-family homes have risen four straight months through June, and reports on home prices suggest that prices are approaching a bottom after two straight years of decline.
All that said, the numbers the past three months, though positive, are gaining strength only gradually, suggesting that the early stages of the recovery will be very sluggish. Starts may be increasing, but that may be a short-lived surge aimed at a home buyer tax credit due to expire Nov. 30.
Meanwhile, sales of new homes remain weak. And though sales of existing homes are on the upswing, the NAR estimates that at least a third of monthly sales involve foreclosures, which continue to increase in step with higher unemployment.
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Reader Comments (3)
Posted by: Joe Honick at 07/24/2009 12:58:48 PM
The modest rash of buying of foreclosed homes hardly reflects some upswing unless accompanied by putting people back to work. In many cases, those purchases of foreclosures are by investors turning them into rental properties because individual buyers either don't believe the market has hit bottom or can't get loans because the appraisal situation is out of whack. The foreclosure situation is reflective of what many of us warned about several years ago and which fell on deaf media and financial ears: too many people received mortgages they should not have gotten as the lenders and brokers did not do their jobs of checking credit or simply ignored the rules while collecting commissions.
Posted by: Kenneth G. Smith II at 07/24/2009 02:22:14 PM
Are we surprised? Or just so affixed to our computer screens, blackberries and cell phone that we forget real estate is Seasonal! If home sales did not increase we would be floored, desperate and start to panic again. Analysts refer to the time in 2006 when 7.2 million housing units sold, but historically the number was around 5.5 million units. We should be relieved that the market is following historical selling patterns. Sales should be up in July, August and September; but what are we going to do when activity falls off for the seasonal 4th and 1st Quarter period? The median sale price should be reversing itself and values should continue to stabilize. But again, this is all within historical patterns for real estate. Are we that desperate for a news reporter or an economist working for the National Association of Realtors take on the market? There are fundamental issues that remain in the market that still have not been addressed by the government or major financial institutions. There are alternatives that can restore stability to the markets that are not being addressed. Do not be surprised in August to see Sales Activity grow 2.5% to 3%, August 2.0 to 2.5% and September barely over 1%. That is real estate and that is what we need to report.
Posted by: Phillip Day at 07/24/2009 02:34:52 PM
What homes are selling? REO, Short-sales, Foreclosed homes. How many hew homes have sold? How many homes sold buy homeowners? This article is so-misleading. When the home builders come back and homeowners can put their home on the market again and actually sell again i/e in 18 months then you can re-issue this silly article.