October 2009 Existing Home Sales: Government-Sponsored Surge in Home Sales Continues

Today, the National Association of Realtors (NAR) released its Existing Home Sales Report for October showing a continuation of the epic government sponsored surge in home sales activity, particularly for condos and lower end properties.

In fact, the stimulative effects have been so pronounced that sales of single family homes were up over 21% annually while sales of condos jumped a whopping 40% over the same period.

As for prices, they are still declining with single family home prices declining at 6.8% annual rate while condos declined at a 10.4% annual rate.

It’s important when reflecting on the sales results to consider that 70% of all sales were for properties priced below $250,000 while only 7.7% were priced at or above $500,000.

Clearly, today’s results unequivocally indicate that the government’s tax gimmick drove a surge in demand, bringing a renewal of speculative animal spirits but the cost has been high with at least $500 million of outright fraud and an FHA that is on the rocks.

This is probably as good a time as any to reflect on the fact that without Realtor campaigning, carping and lobbying of federal representatives as well as publishing a constant flow of propaganda directed at first-time “homebuyers”, the misguided homebuyer tax gimmick would either have never existed or would have had much more limited effects.

So, while the Realtors have brought home the commission bacon to their independent Realtor constituents it will again be the typical American (current and future) that will be picking up tab for this new housing binge.

The following are charts showing sales for single family homes, plotted monthly, for 2006, 2007, 2008 and 2009 as well as national existing home inventory and month supply.

click to enlarge






Below is a chart consolidating all the year-over-year changes reported by NAR in their most recent report.

Comments

[tunaman4u2]

At the very least this money is going to people vs Wall St through the Fed...

I'd rather that any day over AIG payouts, exceptionally low rates for extended period of time

2009 Nov 23 01:55 PM

[Gary A]

Mortgage apps fell off a cliff the past two weeks.

2009 Nov 23 02:14 PM

[professorpinch]

It's not so much the gimmick as much as the threat the gimmick would expire soon. We'll have abnormal sales data from here on out until either 1) no more people are willing/able to take advantage or 2) government really lets the thing expire.

In the meantime, I put this together on my blog, which runs along the same lines as this post:
professorpinch.wordpre.../

2009 Nov 23 02:25 PM

[Radardoc]

Sold,
You stated that:

"It’s important when reflecting on the sales results to consider that 70% of all sales were for properties priced below $250,000 while only 7.7% were priced at or above $500,000."

Do you have any data on what the "normal" (pre-bust) distribution of these sales were? It would seem natural to me that those higher priced homes would be a smaller portion of the market, even in good times. It would be nice to see what the ratio was before for comparison.

Thanks

2009 Nov 23 02:28 PM

[thiazole]

Bearish articles never state what is normal - they want to give as little pertinent data as possible.


On Nov 23 02:28 PM Radardoc wrote:

> Sold,
> You stated that:
>
> "It’s important when reflecting on the sales results to consider
> that 70% of all sales were for properties priced below $250,000 while
> only 7.7% were priced at or above $500,000."
>
> Do you have any data on what the "normal" (pre-bust) distribution
> of these sales were? It would seem natural to me that those higher
> priced homes would be a smaller portion of the market, even in good
> times. It would be nice to see what the ratio was before for comparison.
>
>
> Thanks

2009 Nov 23 04:05 PM

[thiazole]

That statistic is also very loaded as well. Housing prices have dropped precipitously since the top. Back in 2006, the mean price of a house was over $250,000. Now it is only $218,000 - so of course more houses sold for above $250,000 in 2006 than now because there weren't nearly as many houses available under that price at that time. If you want to compare apples to apples, look for the last time the median price of a house was the same as what it is now, and then compare how many houses sold in different price ranges from that period to now.


On Nov 23 02:28 PM Radardoc wrote:

> Sold,
> You stated that:
>
> "It’s important when reflecting on the sales results to consider
> that 70% of all sales were for properties priced below $250,000 while
> only 7.7% were priced at or above $500,000."
>
> Do you have any data on what the "normal" (pre-bust) distribution
> of these sales were? It would seem natural to me that those higher
> priced homes would be a smaller portion of the market, even in good
> times. It would be nice to see what the ratio was before for comparison.
>
>
> Thanks

2009 Nov 23 04:17 PM

[David Van Knapp]

Guess you don't like the tax credit for home sales, huh? What about Bush's reduced tax on dividends...was that OK withya? OK to pay less tax on stocks held > 1 year than < 1 year? OK withya? Do ya really think that the real estate business has been a good business to be in the last year or two? Bringin' home the bacon? Know anybody trying to make aliving selling houses? 'Cause that's not what they tell me.

Tax policy has always been used to promote social and economic policies. Always has been, always will be. If your point is that the tax credit on home sales has changed home sales statistics from what they would have been without the tax credit, please tell us something we don't already know. THAT WAS THE POINT. Just like more companies began issuing and raising dividends when the tax on dividend income was cut.

If you want to argue that it was a bad idea, then state your case. You know, maybe a cost-benefit analysis, or a philosophical piece about the moral hazard of assisting homebuyers in a time of severe recession. But just posting statistics that show the tax credit has impacted the number of homes sold doesn't make any point at all. Duh.

2009 Nov 23 05:14 PM

[thiazole]

I agree. I myself am no fan of Obama or the current legislature. But the real estate tax break was one of the few policies I cheered about. It did what it intended to do - stopped the hemorrhaging in the real estate market and allowed people time to think about just how cheap real estate had become before it caused more damage.
I sincerely believe that some bears were really looking forward to seeing the destruction of this country and were disappointed when a few good government policies (out of dozens of bad ones) kept us out of the next great depression. The only thing I'd do differently about this tax credit is end it gradually - by $2000 a month until it is gone. This will prevent some of the mad rush followed by a big lull in real estate.

On Nov 23 05:14 PM David Van Knapp wrote:

> Guess you don't like the tax credit for home sales, huh? What about
> Bush's reduced tax on dividends...was that OK withya? OK to pay less
> tax on stocks held > 1 year than < 1 year? OK withya? Do ya really
> think that the real estate business has been a good business to be
> in the last year or two? Bringin' home the bacon? Know anybody trying
> to make aliving selling houses? 'Cause that's not what they tell
> me.
>
> Tax policy has always been used to promote social and economic policies.
> Always has been, always will be. If your point is that the tax credit
> on home sales has changed home sales statistics from what they would
> have been without the tax credit, please tell us something we don't
> already know. THAT WAS THE POINT. Just like more companies began
> issuing and raising dividends when the tax on dividend income was
> cut.
>
> If you want to argue that it was a bad idea, then state your case.
> You know, maybe a cost-benefit analysis, or a philosophical piece
> about the moral hazard of assisting homebuyers in a time of severe
> recession. But just posting statistics that show the tax credit has
> impacted the number of homes sold doesn't make any point at all.
> Duh.

2009 Nov 23 06:52 PM

[fwi]

I will never see the prudence of giving taxpayer money away to buyers of new cars or new houses in a time of alarming and increasing deficits. The whole point of free markets is that when asset prices fall enough, buyers will come in without the bait of other people's money. Step back a moment--why would we want house prices to go higher? $8000 is not going to help--it just back-doors the house price to go up by $8000. And then, having bought a house with a higher price, it crowds out other consumption.

You can call it stabilization, higher prices, whatever. But it is still like using a car jack to raise up the body of the car because the road is flooded. You may be glad that the body is drier for the moment, but it is going to get flooded eventually.

THis is one other instance of the Federal Govt led by obama to pick todays' winner (the Realtor lobby) and todays' loser (the American taxpayer, aloong with the retailers that don't service the housing industry).

2009 Nov 23 08:30 PM

[fairbro]

About this "government-sponsored" surge...

Now if the prez would stop acting like a puritanical parent and accept the reality of the love affair between his daughter Tax Cuts & the good boy from the other side of town Economic Growth...

2009 Nov 23 09:48 PM

[rick12345]

Republicans,liberals, Tories (whatever you want to call them) will always critique tax cuts unless they remain the privilege of those who are fortunate enough to sustain a high standard of living, regardless of economic conditions. The tax break helps those young families trying to purchase their first home, who up until now have been priced out of the housing market due to fat cat investors and greedy landlords. As someone above pointed out, I didn't see too many people complaining about tax cuts during the boom years, even though it was clear as day that the government was running unsustainable deficits.
The federal reserve knows fully well that the only way to fix the mess is to overhaul the tax system so that it becomes fairer for people on a low income and more expensive to those who can afford it. It has been proven time and time again in overseas models that a large deficit can only be eliminated if the powers that be introduce some type of value added tax which punishes spending and rewards saving. However, in order to push the barrow you need to fix the wheel first.

2009 Nov 24 05:07 AM

[NutritionFacts]

I think the point is not so much about whether or not it's bad for the US govt to stimulate the housing market in the way that it has but more about being aware of the degree of stimulation, and its effect on what might otherwise be more positive figures, and the risk going forward attached to the removal of any of said stimulation.
Given how big a role housing played in deflating the previous (dot com) bubble, it is as well to be aware of such things. Having said that I believe existing home sales don't have nearly as much effect on GDP as new home sales.

2009 Nov 24 07:21 AM

[thiazole]

If we entered an economic contraction like the Great Depression, the decrease in tax revenues combined with deflation would have made the deficit/debt MUCH MUCH worse. Again, much if not most of the stimulus $ were wasted, but any that were used to clear excessive inventories (which is mandatory for a recovery) was well spent. I don't like that they cherry picked the auto industry for stimulus (let people decide what they will spend their money on or at least pick an industry where most of the items are produced in the US). Still, businesses won't start hiring again until they need to start building inventories back up. Money spent on pet government projects have mostly been a waste, though.


On Nov 23 08:30 PM fwi wrote:

> I will never see the prudence of giving taxpayer money away to buyers
> of new cars or new houses in a time of alarming and increasing deficits.
> The whole point of free markets is that when asset prices fall enough,
> buyers will come in without the bait of other people's money. Step
> back a moment--why would we want house prices to go higher? $8000
> is not going to help--it just back-doors the house price to go up
> by $8000. And then, having bought a house with a higher price, it
> crowds out other consumption.
>
> You can call it stabilization, higher prices, whatever. But it is
> still like using a car jack to raise up the body of the car because
> the road is flooded. You may be glad that the body is drier for the
> moment, but it is going to get flooded eventually.
>
> THis is one other instance of the Federal Govt led by obama to pick
> todays' winner (the Realtor lobby) and todays' loser (the American
> taxpayer, aloong with the retailers that don't service the housing
> industry).

2009 Nov 24 10:09 AM

[billsharpe]

I totally agree. It is amazing no lots of people understand this picture. This is basic microeconomics 101, government tax credit pushed the housing prices up, the buyers got sucked into higher prices. They could get a much better deal without the tax credit, now they got screwed. For a $300,000 house, without the tax credit, they could get it at least 5% less at $285,000. With the tax credit, they paid 300,000, and got 8000 back, so the net price they paid is 292,000. 292,000-285,000 = 7000. They overpaid 7,000 because of this tax credit. First time home buyers got fleeced!


On Nov 23 08:30 PM fwi wrote:

> I will never see the prudence of giving taxpayer money away to buyers
> of new cars or new houses in a time of alarming and increasing deficits.
> The whole point of free markets is that when asset prices fall enough,
> buyers will come in without the bait of other people's money. Step
> back a moment--why would we want house prices to go higher? $8000
> is not going to help--it just back-doors the house price to go up
> by $8000. And then, having bought a house with a higher price, it
> crowds out other consumption.
>
> You can call it stabilization, higher prices, whatever. But it is
> still like using a car jack to raise up the body of the car because
> the road is flooded. You may be glad that the body is drier for
> the moment, but it is going to get flooded eventually.
>
> THis is one other instance of the Federal Govt led by obama to pick
> todays' winner (the Realtor lobby) and todays' loser (the American
> taxpayer, aloong with the retailers that don't service the housing
> industry).

2009 Nov 24 11:30 AM

[thiazole]

Did they? If they had bought into a free fall without the stimulus, the homes they had bought might be worth 20% less than they are right now, or if it had caused more widespread financial failure, they could be down 50% more.


On Nov 24 11:30 AM billsharpe wrote:

> I totally agree. It is amazing no lots of people understand this
> picture. This is basic microeconomics 101, government tax credit
> pushed the housing prices up, the buyers got sucked into higher prices.
> They could get a much better deal without the tax credit, now they
> got screwed. For a $300,000 house, without the tax credit, they could
> get it at least 5% less at $285,000. With the tax credit, they paid
> 300,000, and got 8000 back, so the net price they paid is 292,000.
> 292,000-285,000 = 7000. They overpaid 7,000 because of this tax credit.
> First time home buyers got fleeced!

2009 Nov 25 12:25 PM