on Friday it was reported that existing home sales jumped a surprising 7.2% in July, to their highest levels in almost two years. It was the fourth monthly increase in a row and significantly higher than the consensus forecast that sales would rise 2.2%.
If only the picture were as positive when you look behind the headline numbers that create the excitement. But unfortunately that is not the case.
For instance, in spite of existing home sales rising 7.2% in July, the inventory of unsold homes rose by 7.3% in July, as many more homes came on the market than were sold. That is not a sign that the housing crisis has bottomed.
There are also reasons to believe the sales increase of recent months is temporary, since to a significant degree they were artificially driven by the $8,000 bonus being paid to first-time home-buyers. The National Association of Realtors (NAR) reports that 30% of July home sales were to first-time home-buyers enticed by the bonus. Unfortunately, the bonus program expires November 31, and given the time it takes to close a deal the NAR says would-be buyers need to make offers by the end of September. So at the end of September, six weeks away, will that high percentage of home sales to first-time buyers, 30% of total sales, go away? One would think most of it will.
It is also not encouraging that 31% of July sales were of distressed properties, those in foreclosure, often bought at auction by speculators who intend to flip them back into the market later for a profit, and ‘short-sales’ in which the bank accepts a low-ball offer rather than put the property through the foreclosure process.
That leaves a discouragingly low level of sales that would be considered normal, sales at relatively fair value, with sellers not in a financial crisis, and buyers not subsidized by the temporary first-time buyer bonus.
First time homebuyers are the catalyst for future transactions. When someone buys their first home, they usually are buying a resale from someone who wants to move up to a larger home or an empty nester interested in moving into a active adult or retirement home. With either scenario the initial transaction has the capaibility of triggering 4-5 additional linked transcations. i.e. first time buyer buys a move up buyers home, move up buyer buys a second time move up's home, or empty nester who buys a retirement home.
Its been proven these scenarios and links exist. So don't just look at the numbers on the surface as you are so critical of others. These 30% first time homebuyer numbers are probably going to be the future triggers for increasing sales as we continue to bottom and find some improvement in the future.
and the wave of foreclosures currently crashing around us? Enticing first time buyers does not erase the last crew to be "enticed" with unsustainably low interest rates, who bought ARMs, are now broke and about to those their homes.
This rally is entirely hope and spin, based on a a true "confidence" game". People who ordinarily can't buy a $800,000 house can do so b/c the gov't is pinning down rates. What happens when these rates inevitably creep up?
No more purchases, falling prices, current buyers underwater: 2007.