The NAR reported that pending home sales for November 09 fell by16 percent...THAT'S A HUGE DROP!
The questions we must ask are:
- What caused it?
- What does it mean?
I believe there are a couple of culprits at work here:
- The take advantage of others Tax-Credit was set to expire at the end of November. Consequently many people (many pushed by their Realtor, unwise friends and inaccurate reporters) made offers (pending sale) in September and October to make sure they settled/closed prior the November expiration...all to insure they got their tax-credit.
- This is somewhat speculation, but could be a reality and that is, a lot of people interested in buying and taking advantage of the Tax-Credit and low interest rates did so prior to November.
- The Tax-Credit was foolishly extended till the end of April 2010, thereby giving people an additional 5 months to keep looking, wait for more foreclosures to come on the market, prices to come down over the winter and save some money for a deposit.
- It means whatever real estate uptick there was, was brought about by government stimulation and not by true market demand and need.
- It means that without government subsidies, the housing market is really worse than what people are led to believe.
- It means that the increased demand to buy was based on greed and not need. Greed for robbing from your fellow-citizens to get the tax credit and greed for a low interest rate on created out of thin air, unrighteous money from a corrupt and abominable lender.
- It could mean that people don't care about the Tax-Credit extension because they have either purchased or they are not interested in purchasing.
- It could mean that due to the extension, as stated above, people are waiting for a better opportunity to buy.
- It could mean that while some people would like to buy they can't because they lost their job, got a pay cut, their credit is dinged, etc.
- We need to be looking for the March and April pending home sales reports when they come out in May and June and then compare them with later reports in 2010 after the Tax-Credit has expired...Assuming it isn't extended again.
- A rise in interest rates over the course of 2010 and how that affects home sales.
- Prior to the collapse of the housing market, there is some very good evidence that those that needed to buy (not to be confused by those who were stimulated to buy) because of transfer, increased family size, decreased family size, etc. had done so by 2006. Demographics more than greed drove housing demand.
- Those that bought will now have stay put longer than the typical seven years of owning a home so they can hopefully recoup their costs.
- Those that bought and have lost their home or got out because they didn't want to lose any more value, will/have either downgraded to a smaller more affordable home or will be renting for quite a while due to credit issues.
- What will drive greater demand in the future?:
- Increased population in the 25-45 age bracket
- Babyboomers that are between 45-55 downsizing/retiring (if they can) in 10-20 years
- Lower unemployment
- Restored credit ratings...this will take at least a couple of years up to 10 years.
- When buying (without a mortgage) is clearly better than renting...This one could take a while, we will have to see.
Disclosure: No Disclosure