The First-Time Buyer Tax Credit perhaps worked too well: it fueled a sequel that provided both excess optimism and (later) damaging conditions that reversed much of the good accomplished. The intent and purpose of the tax credit was to activate the most easily activated segment of consumers (people who didn’t own homes, but aspired to own one) and convert them to homeowners. In the process, they would draw down the record inventory of homes, buy up and fix up bank-owned and distress-sale residences and help the market find equilibrium. A stable housing market would trickle to other segments of the economy and eventually stem the tide of the Great Recession. After November 30th, when the first version was to have expired, there were only 4301 listings for sale. Despite the dreadful beginning to 2009’s sale year, the calendar year ended up 400+ units in sales, and with 794 sales in November, the market had actually moved past equilibrium to a seller’s market: an equally-beneficial market is considered to be sitting at six months of supply, and November ended with a mere 5.4 months.
Today, during what is supposed to be the peak demand season of mid-summer, inventory is at 6.4 months. Last year at this time it was at 5.9 months. This is not a huge change, but it presents a serious problem looming ahead. This is shown in the first graph on Page 2, Single Family Home Comparison: in May and June of this year, the bottom fell out of the pending sales (ready to close escrow contracts) indexes once the second wave of tax-credit fever expired. In March and April, 1477 sales went to a pending status. In May and June, when the market demand should still be accelerating, only 1067 went to pending. In May and June last year there were 1360 pending sales. Instead of peak demand numbers in July, when they normally occur, it is fair to assume this year that July will be 10 to 25% off the pace it was at last year.
The real problem with a 10 to 25% downturn in volume is that it convinced a fair number of sellers (and agents) that homes were easy to sell again. What followed was the largest six month run-up in inventory in the PPAR MLS history: a 51% increase in only six months, and today 2000 more properties populate the MLS than started the year. With a 15% increase looming and a 10 to 25% decrease running the other direction, the market enters the second half of the year once again out of balance.
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