First of All: Where We Are Now
The question on many peoples' minds is how the federal home buyer tax credits affected the market, and how we're doing now that the deadlines have passed. (The first deadline required transactions to close by November 30, 2009; this was extended to include transactions signed around by April 30, 2010 and closed by June 30, 2010.)
The graph below shows sales of existing single family homes over the last year, and it's clear that there was a surge of activity in the fall and spring.
We usually see seasonal increases in activity nationwide during those times, but experts agree that the home buyer credit was instrumental in boosting sales numbers even further. First-time buyers made up 51 percent of all buyers in November, and over 40 percent of buyers during the spring.
According to the National Association of Realtors®, pending sales rose significantly in February, March, and April. April beat expectations with a six percent increase that put pending sales 22.4 percent higher than a year before, and at the highest level since October 2009.
Seasonal Trends
One of the biggest misconceptions about the real estate market is that it heats up in the summer. While this might intuitively make sense when we think about sunny weather and children being out of school, home sales on a national level actually tend to drop off during the summer months.
The most active real estate market period occurs during the spring, typically followed by a summer lull, then a perk in the fall before sales slow down again during the holiday season. (These are typical national trends, but are not set in stone and can vary locally.)
This graph shows the
search volume on Google for the term 'homes for sale', and as you can see, there are some interesting year-to-year consistencies.
The peaks in search volume precede the usual seasonal peaks in home sales by a few months. This is especially evident when search volume rises dramatically in December, a time when many buyers are not yet actively looking at homes and a few months before sales numbers show increases in the early spring.
(In other words, home buyers get into a buying mindset quite a while before they start touring homes.)
Existing Sales versus Pending Sales
When it comes to housing market statistics it's important to know what you're looking at, and sources often use different terms without putting them into context.
For example, sales reports that come out mid-year often give the impression that the summer market is hopping because they use numbers based on closed sales, without explaining that those transactions went pending months earlier and are more representative of the spring market.
(Pending sales index not seasonally adjusted.)
To be clear,
'Existing Sales' are transactions that have already closed. Because closing times vary greatly, 'existing sales' numbers may reflect market conditions from six months ago or three weeks ago - it's hard to tell.
'Pending Sales' are transactions that are under contract but have not yet closed, and are generally considered to provide a more forward-looking picture of the market.
The caveat is that not all pending transactions turn into closings. It's estimated that on a national level, 80 percent of conventional transactions and 35 percent of short sale transactions successfully close. (Distressed sales accounted for nearly 30 percent of U.S. home sales by April of 2010.)
Looking Ahead
The summer outlook:
Since the federal tax credit deadlines coincided with what is typically a less busy season for housing anyway,
it would not be surprising to see a more pronounced slowdown in the market than normal. Recent numbers appear to be backing this up. According to the Wall Street Journal, applications for home purchase mortgages were down over 40 percent in May compared to a month before.
The fall outlook:
While most experts believe that the tax credit accelerated some late spring and summer demand and squeezed it into the spring buying season, it probably had less effect on fall home buyers. Interest rates in the fall should still be low compared to historical norms, and buyers will have plenty of inventory to choose from (so even if sales increase, it's not realistic to expect prices to go up significantly).
Those factors will help make the fall season a buyer-friendly one.
How it ultimately turns out will depend a great deal on consumer confidence and the unemployment picture, which brightened in April when non-farm payroll jobs increased by 290,000 (up 573,000 from December).
Housing supply:
More homes than expected came on the market in 2010, due in part to sellers timing their listings for the home buyer credit. Inventory levels are expected to rise further due to a backlog of homes currently working their way through the foreclosure process.
('Houses' refers to all non-condo single-family homes. 'Condo' refers to condos and co-ops. 'Months of Supply' refers to the number of months it would take to sell all remaining inventory at the current rate of sale if no new homes came on the market.)
Interest rates:
Interest rates are expected to rise eventually, but for now they are at nearly historically low levels, hovering in the high four percent range.
This makes it a great time to refinance into a fixed-rate mortgage, although some homeowners face difficulties due to reduced property values or credit problems. Homeowners who have up to 25 percent negative equity in their home but who are current on their mortgage payments may qualify for the federal
Home Affordable Refinance Program (HARP); for some reason not many people appear to be taking advantage of this yet.
Foreclosures:
New foreclosure actions decreased seven percent in May, according to
RealtyTrac. Foreclosure actions overall dropped three percent, finishing up one percent higher than a year before. Bank repossessions soared, however, due to lenders working through a backlog of old foreclosures. One in every 399 households in the U.S. received some kind of foreclosure-related action in May (a notice of foreclosure, scheduled auction, or bank repossession.)
That statistic varies wildly by state, with Nevada topping out at one foreclosure action for every 78 households, and Vermont with one for every 16,453.
Mortgage loan interest rate resets are expected to increase this fall and in 2011, leading some experts to predict that we may eventually see another rise in new foreclosure actions. Resets do not automatically lead to loan default, however, and much will depend on interest rates and the employment picture at that time.
The buyers:
All-cash buyers now make up 25 percent of the market nationwide,
compared to a historical ten percent. This is especially true in areas such as Las Vegas and Phoenix, where some lenders are accepting only cash. In California investors are credited with scooping up a large share of the low-end properties, making the market more challenging for first-time buyers compared to other states.
High end properties:
The Institute for Luxury Home Marketing has some pretty interesting graphs (
click here to see them on their website) showing national trends in luxury home activity.
The high end is currently a buyer-friendly market, with a large amount of inventory having come on in January and price reductions occurring at an increased rate since then. Total market time appears to be decreasing, however.
