The ongoing question…
Will the Federal Government offer another home buyer tax credit to help stimulate the economy and why would they?
First the “why would they” question. Housing has a huge effect on the economy both local and national. The purchase of one home puts more people to work than almost any other major purchase. From the Realtor to the Inspector, to the Title Company, the lender, appraiser, surveyor, utility companies, movers, repair people, retail stores, and the list goes on. The financial ripple effect of 1 home sale goes on and on.
Now how “will they” question. We are moving toward an election year where many of the legislative members will be replaced or reelected. With the overwhelming success of the last TAX stimulus package there will be a lot of push to vote it in again.
Written by Mary Beth Harrison, www.dallastexasrealestateblog.com
Despite several homebuilders seeing a boost in earnings from the housing stimulus, the new home inventory is still at a 40 year low, and sales of new homes are near record lows. While most analysts expect another 5-10 percent fall in home prices, there is speculation that a more substantial fall could motivate the government to pass another housing stimulus. See the following article from The Street for more on this.
The housing market saw sales ramp up in March and April as consumers rushed to take advantage of tax credits that offered as much as $8,000 for first-time homebuyers and $6,500 for repeat buyers. Following the expiration of those credits on April 30, the market saw a dramatic decline in demand for the month of May that spilled over into June. Lawmakers later extended the deadline to close on a home purchase and still qualify for the tax credit to Sept. 30.
The rush of homebuyers looking to take advantage of federal tax credits helped homebuilders like
D.R. Horton and M.D.C. Holdings outpaced sector peers on volume — growing closed sales volume by 60% to 6,805 homes and 71% to 1,135 homes, respectively, in the second quarter — primarily due to their willingness to go out and build spec homes, explained Stifel Nicolaus analyst Michael R. Widner. In other words, they were willing to take the risk of building new home inventory without contracted buyers in place. That bet paid off as hoards of buyers showed up in April wanting to take advantage of the credits, and were willing to make a rushed deal to qualify.
PulteGroup(PHM) said last week its closing volume doubled last quarter to 5,030 homes thanks in part to the tax credit.
While spec building helped D.R. Horton and M.D.C. Holdings, among others, grow sales volumes in the run-up to the deadline, the pair may now face a new risk of having overbuilt, potentially overexposing themselves to excess inventory now flooding the market.
The
Sales of newly built homes rose 23.6% in June to a seasonally adjusted rate of 330,000, ahead of expectations, from a revised record-low rate 267,000 units sold in May.
While any increase in the rate of home sales is seen as a good sign for the economy and housing market in general, the uptick in June home sales still represented the second-weakest month on record after May's depressed figures. It was also 76.3% lower than the 1.4 million-peak in July 2005, at the height of the housing bubble.
The consensus view among analysts and homebuilders is that the June figures were "unsustainably low," Widner said, but the question of how long the current pace of sales will last, or how much higher a sustainable rate of sales would need to be, remains.
Widner estimated that a longer-term norm would be around 800,000 new home sales per year, more than double the U.S. housing market's recently reported pace. Based on excess vacancies currently in the market, Widner believes the pace of new home sales won't return to that ideal level until around 2014, over three years from now. Clearly, it's not a simple or quick fix.
"The government expended extremely high amounts of effort to try and stabilize the housing market and keep home prices from falling further," Widner said. "I don't think after all that they'll walk away if things start to deteriorate again."
Still, most homebuilder sector analysts agree that home prices will continue to slide in the range of 5% to 10% before picking back up again, though bears will argue the drop will be closer to 25%.
In a stable housing market, there will not be another stimulus like the homebuyers' tax credit. But most market watchers recognize that without housing stability there will be no economic recovery.
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