Data adds to worries industry is mostly propped up by government stimulus
WASHINGTON – The number of people preparing to buy a home in November fell sharply in the latest sign that the housing market, which had been rebounding strongly, may be headed for a “double-dip” downturn over the winter. (You can click on the title to read the full article).
A few of you have asked me about the AP article that came out this past Tuesday. Because some of the numbers quoted came from the National Association of Realtors®, you’re concerned about what that means to our market and if we’re in for another round of price declines.
Please remember that while some of the numbers quoted did come from NAR, the interpretation was supplied by the Associated Press, not the Realtor® organization – and there-in lies the rub.
The article indicates that the ‘pending home sales index’ (PHSI) dropped 16% in November, the first decline in 9 months. Their conclusion was that this indicates a significant slowing of the market and indicates a market propped up by government programs that is poised to enter another round of price drops.
Our Association disagrees with that interpretation of the numbers for the following reasons:
- NAR’s Pending Home Sales Index (PHSI) is a barometer of future sales. Typically, there is a one- to two-month lag between the signing of a sales contract and the close of escrow (even longer for some of the short-sales that dominate our market right now). Although government incentives, low interest rates, and affordable home prices have lured many buyers, especially first-timers, to the market, historically sales decline during the winter months and rise in the spring.
- Also keep in mind there was a significant push for homebuyers to close escrow prior to the end of November to benefit from the First Time Homebuyer Credit, which was scheduled to expire then. This provided a boost to the PHSI in September and October but dropped off in November as consumers waited to see if the program would be extended or expanded. It was. We have every reason to believe this will continue to stimulate the market and reduce inventory levels this spring just as it did during the past 6 months.
- Because of the government’s efforts to stimulate the housing market, some economists believe that housing prices will decline once the incentives come to an end. However, the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) closely watched “2010 California Housing Market Forecast,” projected that the median home price in California will rise 3.3 percent to $280,000 in 2010 compared with a projected median of $271,000 in 2009. We have already experienced a 4% increase to our local median price level between Q1 09 and Q4 09. As local demand continues to outpace supply, I see no reason that trend should change.
- According to C.A.R.’s Vice President and Chief Economist Leslie Appleton-Young, unlike the rest of the nation, home sales in California already bottomed out more than two years ago, and the median home price reached its trough in February 2009. You’ve seen similar figures for our local market with strong sales, stable prices and greatly reduced inventory throughout this past year.
- Although home buyers should not focus solely on future home price appreciation, according to data collected by C.A.R. over the last 40 years, homeowners who purchase a median-priced house, live in their home for at least five years, and sell it at the current median price, have averaged an annual rate of return of more than 11 percent.
As with many issues, there is often a ‘Story Beyond the Headlines’ and we wanted to make sure you got the full story on this one.
I should have final numbers for 2009 sometime next week and will forward my yearend summary to you at that time. Please feel free to call me as you have additional questions.