Surviving the Headlines

Ominous, hand-wringing headlines greeted the news late last month that July home sales across the U.S “hit the wall” after the First Time Home Buyer Tax Credit expired.   These gloomy headlines—which are virtually guaranteed to continue unabated between now and the end of the year—paint a very confusing picture of our local real estate market; which, by all accounts, has been on a solid footing throughout most of 2010.  Yet the slowdown in sales affecting July—the first month of recorded sales since the tax credit expired—is hardly indicative of the housing backslide that many of the accompanying news stories seem all-too-eager to suggest.

Virtually everyone who follows the market—from pundits and prognosticators to reporters and REALTORS®—knew instinctively that a slowdown in sales was inevitable in the wake of the tax credit’s expiration. So why all the shock, anguish and second-guessing about the state of our market’s health now that actual sales have borne out these expectations?   Any effective purchasing incentive—such as the home buyer tax credit or last year’s successful Cash for Clunkers program for car buyers—typically inspires consumers into immediate action who might otherwise have acted more leisurely.  The tax credit essentially allowed us to borrow against future buyers at a time when sales were urgently needed to help stabilize the market.

As expected, sales fell off in the weeks immediately following the tax credit’s cut-off.  It happened after phase one of the credit expired, then again after its extension expired; largely because buyers acted appropriately.  They stepped-up in a sped-up time frame to take advantage of a significant tax credit simultaneous with the lowest home prices of a decade; not to mention the lowest mortgage rates in recorded history.   In the process, they chewed up a sizeable chunk of our bloated housing inventory.

Of course, moving their purchases forward meant that the pool of available buyers for properties after the tax credit would undoubtedly shrink, albeit temporarily.  No surprise there either.  There’s no better evidence that the tax incentive helped stimulate much-needed property sales on a broad scale than the nationwide paucity in closings that occurred immediately after it expired.  Meanwhile, the pool of active buyers is gradually replenishing itself as we approach the first quarter of 2011, which is predicted to experience much healthier unit sales.

So why all the worrisome headlines about the real estate market taking a giant step backwards after such a promising first half of 2010?

Could they have anything to do with the fact that July 2010 sales looked all the worse for being compared with sales from the same time last year?   We daresay that the gap between the two years wouldn’t have been as wide if this July’s sales—the first month absent an official government stimulus—weren’t being compared to a year ago when thousands of buyers were scrambling to take advantage of a very effective one.  Is it truly indicative of the overall health of our market to form a diagnosis based on comparing two such vastly different sales environments?  These are two extremes in search of a healthy middle ground.

The numbers do show that there are still plenty of buyers actively combing our market for whom low prices and unprecedented interest rates are all the purchasing incentives they need.

Tax credit or no tax credit, buyers are still buying; as evidenced by the 10,000 homes that sell every single day across the U.S.  10,000 yesterday, 10,000 today and 10,000 tomorrow. Though a great deal of housing demand was quenched for the time being thanks to the tax credit, it is expected to ramp up again in the New Year.  This will occur almost naturally because people buy homes and form new households for reasons over and above great prices and one-time tax breaks.

A recent study shows that price, though definitely a key component of every purchasing decision, is only one concern of the average home buyer.  Buyers also act in order to provide better, more secure accommodations for their families, to live in a preferred neighborhood or community; or to satisfy a long-term lifestyle goal, such as retiring to Southwest Florida.  Renters typically become buyers to wrest greater control over their environment, to have more living space and a yard for their children to play in; and yes, because in today’s market owning a home can be substantially less expensive.

We advise no one to ignore the news, so much as keep it in its proper perspective.  Read between the lines and draw your own conclusions about the relative health of our real estate market.  Sales will gather momentum again as new demand rushes in to replenish that which was satisfied during the great tax credit buying spree.  All we have to do is survive the headlines.

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