The index remains 20.5% below a surge to a cyclical peak of 112.4 in October 2009, which had been impacted just prior to the first expiration in November 2009 of the first-time homebuyers tax credit. We have to go back to May 2006 when the index hit 112.6 to reach the previous high.
NAR chief economist Lawrence Yun cited “excellent affordability” for October’s improvement.
But he added that “activity needs to improve further to reach healthy, sustainable levels. The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011.”
His comment that housing is “clearly in a recovery phase” may be a bit optimistic in my view, but as the chart above reveals, the new and existing buyers tax credits that encouraged the spike in sales earlier in the year, which was then followed by a near collapse in activity (because the incentive caused many to move up plans), seems to have worked its way through the pipeline.
Activity is now being influenced – for better or for worse – by a number of factors related to the economy and the housing market, rather than being distorted by the temporary outside influence of tax incentives.
Housing prices have come down, foreclosures are encouraging some to take advantage of bargains and mortgage rates were at record lows last month when the contracts for existing homes were signed.
However, the unemployment rate remains well above 9%, the slow recovery has cast doubt over the labor market and the still-high number of foreclosures is keeping others on the sidelines amid concerns that prices have not reached their lows.
Nonetheless, the variables that are lending support to the market do suggest sales have finally bottomed and a slow and uneven recovery appears to be in progress.
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