A housing rebound is critical if the nascent economic recovery is to develop into a more permanent expansion. Today’s decline in existing home sales is a letdown, but following four-consecutive monthly gains, it shouldn’t come as too much of a surprise.
The National Association of Realtors reported today that existing home sales declined 2.7% to a seasonally-adjusted annual rate of 5.10 million units in August, giving back some of July’s outsized gain.
“The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions,” NAR chief economist Lawrence Yun said.
“Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can’t take a housing rebound for granted.”
Lobbying for an extension of the first-time home buyer tax credit, Yun went on to say that he anticipates a rise in foreclosures over the next 12 months and a healthy level of ready buyers to absorb the expected inventory is needed.
Yun is probably correct as the credit has been one of the few effective tools in the president’s stimulus package. Rates remain near historic lows and affordability has also provided an incentive for reluctant buyers.
Washington should carefully consider whether it really wants end the credit.
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