Similar to “Cash for Clunkers”, “Cash for Cul de Sacs” drew in first time buyers in a rush to get of what was perceived as the last taxpayer largesse to buy homes. Unfortunately, those people were not reading FMMF where they would have been able to see the prediction that Congress would continue to extend and expand said credit past the original deadline since we are a country addicted to free money. Bribing citizens to purchase things by layering on debt to our grandchildren is now the national ethos. Unfortunately, the populace somehow thought the tax program would actually go away…. and hence rushed to lock up homes in the fall.
Unfortunately, there was a giant sucking sound after everyone rushed in to October and November… and we now see the largest plunge in monthly sales in 40 years. But no worries – the market sold off for 3 minutes until Goldman Sachs reassured clients that the April 2010 deadline for the extensions of tax credit is just another temporary stop, and there will be more handouts “for the middle class” (wink wink) as we get closer to the spring housing market and cries from Washington (i.e. lobbyists from the home builder sector) about how a new extension is needed to keep the recovery rolling. And thus it will be.
More morphine please!
(keep in mind existing home sales are 90%+ of the market, hence this report is far more important than Wednesday’s new home sales)
Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, plunging far deeper than expected after lawmakers gave buyers extended time to use a tax credit.
The National Association of Realtors says sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million in December, from an unchanged pace of 6.54 million in November. Sales had been expected to fall by about 10 percent, according to economists surveyed by Thomson Reuters.
Buyers were no longer scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30, but Congress extended the deadline until April 30. (until the next extension of course)
The share of homes sold to first-time buyers fell to 43 percent in December from 51 percent the prior month…. indicating the expected end of the tax credit played a role in the drop.
On the “plus side” with a few trillion dollars of Federal Reserve MBS purchases, and billions handed out in tax incentives the median price actually rose. A small price to pay for “green shoots”. Sorry that was cost-benefit analysis; let me give you the media spin aka benefit-benefit analysis: median home prices rose 1.5% – awesome.
The median sales price was $178,300, up 1.5 percent from a year earlier
Affordability levels remain at record highs, which you’d think would not necessitate free money handouts left and right. But with home ownership rates as a % of population still ABOVE the long term average, bringing in the marginal buyer requires more sacrifice from your grandchildren. Please thank them once more for their continued assistance ….
For the year, existing home sales rose 4.9 percent to 5.16 million, the first gain in four years, from 4.91 million in 2008.
If one only took the time to calculate what cost (plus interest payments on all the new debt) it required to get that 5% year over year increase in home sales… it will be the most expensive 250,000 houses ever bought in the history of the U.S.[emphasis added]