The rush of folks seeking to cash in before the anticipated end of the first-time home-buyer tax credit pushed existing home sales up across all regions of the country in November.
For the second month in a row, sales have risen in all price classes from a year earlier, according to a monthly survey issued by the National Association of Realtors. Before October, the only consistent gains were in the lower price ranges.
Existing-home sales — including single-family, townhomes, condominiums and co-ops — rose 7.4 percent to a seasonally adjusted annual rate of 6.54 million units last month from 6.09 million in October. Coming off depressed levels a year ago, sales jumped a whopping 44.1 percent over the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007, when they hit 6.55 million.
While state-by-state numbers have not been released yet, existing-home sales in the Midwest increased 8.4 percent in November to a pace of 1.55 million and are 53.5 percent above a year ago. The median price in the Midwest was $140,800, a decline of 0.4 percent from November 2008.
Historically, Minnesota has done a little better than the nation and the Midwest, according to Herb Tousley, director of the Shenehon Center for Real Estate and head of graduate program in real estate at the University of St. Thomas in Minneapolis. “The jobless rate is better here and we have a little healthier economy, so we tend to do a little better.”
In explaining the across-the board jump in sales, Tousley credited the recently extended and expanded tax credit with propelling buyers into the market. “The big driver was the perception that the tax incentive was ending at the end of November, so there was a rush to get into it. The program wasn’t extended until late November. By that time, people were already in the market.”
The survey also reported that first-time buyers made up 51 percent of home purchases in November, compared with an upwardly revised 50 percent of transactions in October.
“Nearly all markets experienced a solid sales gain from one year ago,” Lawrence Yun, NAR chief economist, said in a press release. “The only markets with measurably lower sales were in San Diego, Riverside, and Sacramento, where inventory shortages for lower-priced homes are limiting sales.”
Existing-home sales in the Northeast rose 6.6 percent to an annual level of 1.13 million last month and are 52.7 percent higher than November 2008. The median price in the Northeast was $223,400, down 13.1 percent from a year ago.
In the South, existing-home sales rose 4.8 percent to an annual level of 2.39 million in November and are 44.8 percent higher than a year ago. The median price in the South was $151,400, down 1.4 percent from November 2008.
Existing-home sales in the West increased 10.6 percent to an annual rate of 1.46 million last month and are 28.1 percent above November 2008. The median price in the West was $231,100, which is 4.1 percent below a year ago.
Saying the tax-driven sales boost was expected, Yun predicted “a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit, which hopefully will take us into a self-sustaining market in the second half of 2010. In all, 4.4 million households are expected to claim the tax credit before it expires and balance should be restored to the housing sector with inventories continuing to decline.”
The national median existing-home price for all housing types was $172,600 last month, which is 4.3 percent below November 2008. Distressed properties, which accounted for 33 percent of sales in November, continue to distort the median price because they generally sell at a discount relative to traditional homes in the same area.
Single-family home sales jumped 8.5 percent to a seasonally adjusted annual rate of 5.77 million in November from a level of 5.32 million in October, and are 42.1 percent above the pace of 4.06 million in November 2008. The median existing single-family home price was $171,900 in November, down 4.4 percent from a year ago.
Existing condominium and co-op sales in November were unchanged from a seasonally adjusted annual rate of 770,000 in October, but are 60.1 percent above the 481,000-unit pace a year ago. The median existing condo price was $178,000 in November, which is 3.1 percent below November 2008.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.88 percent in November from 4.95 percent in October; the rate was 6.09 percent in November 2008. Last month’s mortgage interest rate was the second lowest on record after bottoming at 4.81 percent in April 2009.
Total housing inventory at the end of November declined 1.3 percent to 3.52 million existing homes available for sale, which represents a 6.5-month supply at the current sales pace, down from an 7.0-month supply in October.
Raw unsold inventory figures are 15.5 percent below a year ago. The last time there was a lower supply of homes on the market was April 2006, when it was at a 6.1-month supply, according to the report.
Weak new home sales and housing starts is both good and bad news.
One of the key economic problems right now is there are too many housing units. This excess inventory includes a large number of single family homes, and a record number of vacant rental units. So fewer housing starts means population and household growth will absorb the excess housing units quicker. So weak new home sales and housing starts is good news for the housing market.
Unfortunately weak new home sales and housing starts are one of the key drivers out of a recession for both GDP growth and employment. So weak new home sales and housing starts is bad news for the economy and employment.
Usually residential investment recovers quickly coming out of a recession. However look at the ’90/’91 recession – residential investment recovered slowly, and so did employment (a jobless recovery). I expect the recovery in residential investment to be sluggish this time too. Note that the ’01 recession was business led (the stock market bust).
I think we will work out of it slowly. I guess the hope is that exports and maybe some technology will lead the way this time (I like tech toys, so I hope it is something cool!)
But my guess is slow and sluggish – and hopefully not a double dip.
One last thought regarding home-ownership.
You shouldn’t touch real estate, as I think it will be dead money for another decade. Rent don’t buy. If you have to buy, then get a 30-year fixed rate mortgage now at 5%, because rates are going up a lot in the future. When I bought my first home in New York in the early eighties, I got nailed with a 17% interest rate on my mortgage. We may revisit those levels.
Houses will continue to move lower, maybe another 10% or so. We have another wave of foreclosures hitting the system soon, triggered by the option arm readjustments. I see support for prices when the cost of owning and the cost of renting are more in line. Home ownership may have to become cheaper than renting, because of perceived risk to the principle, for the real estate market sell-off to finish. However, expecting houses to drop a lot from here is like shorting Citibank at $3. We’ve basically had the big move already. Due to poor demographic factors, the demand for houses is going to take a long time to come back. While 80 million baby boomers are trying to sell their houses to 65 million gen Xer’s, don’t expect a recovery in prices, especially when the gen Xer’s are still living in your basement.