"Home Sales Bounce Back", Or Do They?
The main headline in the St. Petersburg Times for November 24, 2009 was "Home Sales Bounce Back", and the paper reported that the volume of home sales in Pinellas County jumped 37 percent for the twelve months ended October 31, 2009. The article was professionally written by good ol' James Thorner who did his usual excellent job.
News of a big sales increase is enough to make real estate agents and home sellers positively giddy. C'mon everybody, uncork that vintage bottle of wine you've been saving for some good news, book that passage on a cruise ship to South America, and finally set an appointment for that lipo weight reduction procedure you've been putting off because, yes, the newspaper has reported that good times have returned to real estate.
Ummmmm ... not so fast.
After you get over all those warm fuzzy feelings, you might want to look into the reasons for this increase, try to determine why the numbers jumped up so favorably, and question if this is something that will continue.
So, let's explore some of what this all means, and then you can make the call based on whether you're an eternal optimist or a dreary pessimist.
Fact: Home sales had their best October in four years. That's good.
Fact: Buyers "scooped up", as the newspaper wrote, distress properties using the $8,000 first-time home buyer tax credit. That's good, but there's a hint of dark clouds on the horizon. I mean, suppose your house is not a distress sale? Did it get "scooped up"?
Fact: Realtor sales totaled 2,758 units in October, the highest 1-month total since 3,735 units were sold in October of 2005. That's good.
Fact: Foreclosure and pre-foreclosure houses made up almost half of all sales in October. That's good, but it's telling us something about the market, who's really buying and what they are looking for.
Fact: The median home price dropped 10% over the year, from $152,300 to $137,500. Overall, prices have dropped 42% from the summer of 2006. That's good if you're a buyer, bad if you're a seller, terrible if you're a mortgage holder on a house bought in '06. Falling prices is clearly why people are buying houses now. No big marketing secret.
Fact: In Tampa Bay, there were a lot of cash buyers. That's sort-of good if you're a seller with lots of equity, but it once again tells us a lot about the market and who's really buying. "Cash buyers" quite often mean "investor buyers" and "investor buyers" generally mean "bargain hunters". Get the picture?
So, let's quickly summarize these facts which were brought up in the newspaper article: Low prices, the $8,000 tax credit, low mortgage interest rates and cash buyers combined with desperate sellers and bargain-hunters to cause a jump in home sales. That's about it, right?
Do those reasons sound like a sustainable market recovery to you? Or do they sound like a very short-term situation?
Before you answer, here are some other facts you need to consider that were brought out in the newspaper story or that we all know:
Fact: The tax credit will expire in mid-year 2010 and, according to most Washington D.C. reports, will not be extended again by Congress. So, kiss that little buying incentive good-bye.
Fact: No matter how you look at the figures, the nation and the Tampa Bay area suffers from very high unemployment -- and many of those people will remain unemployed or underemployed for the foreseeable future since many of their jobs were lost to overseas companies and are not coming back here. Re-employing the country and Tampa Bay may take years. Unemployed people don't buy houses. Underemployed people often move away in search of more gainful employment, thus putting more houses on the market.
Fact: Mortgage interest rates are very likely going to rise beginning in 2010, making it more difficult for buyers to afford homes. Adjustable rate mortgages are likely going to re-set upwards after the first of the year. Hmm, doesn't that sound like one of the things that got us into this mess in the first place?
Fact: Foreclosures will continue into 2010. This means the market will continue to be flooded with distress properties that tend to drive non-distress properties toward lower prices and hamper any kind of home appreciation and price recovery.
To make a long story short, this rise in home sales might be an artificial increase since it is supported by non-market driven factors, government-backed subsidies and fluctuating market and financial conditions.
When those things go away or change, what will happen? Well, nobody knows for sure. There are a lot of factors that have to be analyzed during the next six months or so.
I'll tell you this based on all the facts above: If I were a home seller or real estate agent, I'd delay buying that new 32-foot sailboat until I was able to determine which way the wind was blowing in 2010.
And so it goes ...
News of a big sales increase is enough to make real estate agents and home sellers positively giddy. C'mon everybody, uncork that vintage bottle of wine you've been saving for some good news, book that passage on a cruise ship to South America, and finally set an appointment for that lipo weight reduction procedure you've been putting off because, yes, the newspaper has reported that good times have returned to real estate.
Ummmmm ... not so fast.
After you get over all those warm fuzzy feelings, you might want to look into the reasons for this increase, try to determine why the numbers jumped up so favorably, and question if this is something that will continue.
So, let's explore some of what this all means, and then you can make the call based on whether you're an eternal optimist or a dreary pessimist.
Fact: Home sales had their best October in four years. That's good.
Fact: Buyers "scooped up", as the newspaper wrote, distress properties using the $8,000 first-time home buyer tax credit. That's good, but there's a hint of dark clouds on the horizon. I mean, suppose your house is not a distress sale? Did it get "scooped up"?
Fact: Realtor sales totaled 2,758 units in October, the highest 1-month total since 3,735 units were sold in October of 2005. That's good.
Fact: Foreclosure and pre-foreclosure houses made up almost half of all sales in October. That's good, but it's telling us something about the market, who's really buying and what they are looking for.
Fact: The median home price dropped 10% over the year, from $152,300 to $137,500. Overall, prices have dropped 42% from the summer of 2006. That's good if you're a buyer, bad if you're a seller, terrible if you're a mortgage holder on a house bought in '06. Falling prices is clearly why people are buying houses now. No big marketing secret.
Fact: In Tampa Bay, there were a lot of cash buyers. That's sort-of good if you're a seller with lots of equity, but it once again tells us a lot about the market and who's really buying. "Cash buyers" quite often mean "investor buyers" and "investor buyers" generally mean "bargain hunters". Get the picture?
So, let's quickly summarize these facts which were brought up in the newspaper article: Low prices, the $8,000 tax credit, low mortgage interest rates and cash buyers combined with desperate sellers and bargain-hunters to cause a jump in home sales. That's about it, right?
Do those reasons sound like a sustainable market recovery to you? Or do they sound like a very short-term situation?
Before you answer, here are some other facts you need to consider that were brought out in the newspaper story or that we all know:
Fact: The tax credit will expire in mid-year 2010 and, according to most Washington D.C. reports, will not be extended again by Congress. So, kiss that little buying incentive good-bye.
Fact: No matter how you look at the figures, the nation and the Tampa Bay area suffers from very high unemployment -- and many of those people will remain unemployed or underemployed for the foreseeable future since many of their jobs were lost to overseas companies and are not coming back here. Re-employing the country and Tampa Bay may take years. Unemployed people don't buy houses. Underemployed people often move away in search of more gainful employment, thus putting more houses on the market.
Fact: Mortgage interest rates are very likely going to rise beginning in 2010, making it more difficult for buyers to afford homes. Adjustable rate mortgages are likely going to re-set upwards after the first of the year. Hmm, doesn't that sound like one of the things that got us into this mess in the first place?
Fact: Foreclosures will continue into 2010. This means the market will continue to be flooded with distress properties that tend to drive non-distress properties toward lower prices and hamper any kind of home appreciation and price recovery.
To make a long story short, this rise in home sales might be an artificial increase since it is supported by non-market driven factors, government-backed subsidies and fluctuating market and financial conditions.
When those things go away or change, what will happen? Well, nobody knows for sure. There are a lot of factors that have to be analyzed during the next six months or so.
I'll tell you this based on all the facts above: If I were a home seller or real estate agent, I'd delay buying that new 32-foot sailboat until I was able to determine which way the wind was blowing in 2010.
And so it goes ...
-30-
posted by Terry Ward at 3:28 AM
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