It hasn’t been pretty in the two months following the expiration of the federal homebuyer tax credit program. Pending sales for existing homes fell 30 percent in May. New home sales fell by 33 percent to its lowest level in almost 50 years. The declines were expected because consumers responded heavily in the prior two months before the incentives expired. Why wait to sign a contract in May when doing so in April will result in an $8,000 credit? June has also remained similarly weak.
Even with the setback of last two months the tax credit stimulus can be called a success in terms having stabilized home prices. At least while in place. When home values are stable foreclosure pressure becomes less, balance sheets and consumer confidence improves. Currently there are signs of home price stabilization in most markets. However, low sales activity over the short-term will cause housing inventory to rise. Provided the elevated inventory will only be for the short term, then home prices will not undergo heavy pressure. If the trend of the last two months continues into the fall months the housing industry will have some great challenges.
To have a sustainable long term recovery, without stimulus, we need job growth. Not the temporary census jobs but true private sector jobs. Net private sector jobs so far this year were up 593,000. This is an insignificant number after the eight million job cuts in the past two years. And the latest report from the Bureau of Labor Statistics shows that in June the economy lost jobs for the first time this year.
Mortgage rates also need to remain low. Because of the uncertainty regarding the strength of overall economic expansion many investors have put money into the U.S. Treasury bond market. That has pushed down the 10-year Treasury yield to 3 percent as of this writing. A 30-year fixed rate mortgage then can be obtained for around 4.62 percent. That is very favorable for consumers.