Summer Torpor for Housing Sales
A fall revival is still in the cards, but it will be a weak year on balance.
A summer swoon is under way, and housing will continue to languish until fall. As the federal tax credit for home buyers draws to an end, new-home sales are plunging. From April to May, they dropped 33% to their lowest level in 40 years. For the purposes of the tax incentive, new-home sales are counted when a contract is signed rather than when the deal is closed, so the loss of the credit is showing up first there.
A significant drop in existing-home sales will follow in coming months. Because of a last-minute rush to grab the credit, which applies to sales under contract by April 30 that close before the end of June, existing-home sales are likely to actually post an increase that month. Then they’ll sink.
The weakness is cause for concern -- the housing market is teetering on the edge of another dip. But it’s too soon to tell if it will fall off the edge.
We’re still inclined to expect modest improvement come fall, nudged on by the recovering economy and increased job creation. Note, too, that the median price of existing-home sales, which make up 90% of total sales, increased 2.7% over the past 12 months.
But it will be late 2011 before housing returns to more normal conditions, with housing starts of 900,000 or so and annual sales sustained at something above 6 million. Foreclosures will remain a drag, with an estimated 2 million this year and about the same in 2011.