For a while there, it seemed the housing market had made the turn to recovery. Housing sales were up in nearly every month in 2009. But today it looks like real estate is headed back down again. The National Association of Realtors is out with its monthly housing stats and sales were down 7.2% in January from the month before, the second month in a row that housing sales fell. The realtor’s association is trying to spin these numbers to say they are not as bad as they appear. I don’t buy it. Here’s why:
First of all, the realtors are saying that while January sales were down from December, the number of houses sold was up from a year ago. That’s true but is little reason for optimism. Last January, we were still in the heart of the credit crunch, making it impossible for nearly anyone to close a home purchase. Calculated Risk Blog has a good chart showing how bad January was. Take a look at the bars all the way to the left. Excluding last year, this was by far the worst January for housing in the past five years. Probably more. I just don’t have the data on hand.
It wasn’t only sales that were down. Prices were down, too. The average house in January sold for $164,700. That is nearly a 10% drop from where we were just seven months ago, when the average house was selling for $181,800. In a recovering housing market you would hope that falling prices would translate into higher sales. That’s what was happening a little over a year ago.
Then there is the question of inventory. The realtors point out that the inventory of unsold homes fell in January. This sounds like good news because fewer unsold homes should mean less supply of houses and lead to higher prices. But the drop was slight. And these numbers are not seasonally adjusted. Inventory almost always drops in January. There are fewer buyers in the winter and houses generally look better when they are surrounded by grass and flowers. So home sellers typically pull their houses from the market this time of year, hoping to get a better price in the Spring. What’s more, the government’s effort to force banks to modify loans continues to slow the foreclosure process keeping those homes off the market as well. Expect inventory to spike again in the next few months.
But the NAR’s biggest argument for why you should ignore these numbers has to do with the first-time homebuyer tax credit. The $8,000 break was scheduled to end in November, but news that Congress was going to extend the credit started surfacing in September. It generally takes three months to close a house purchase. So sales would have stalled in August as people got closer to not being able to meet the original November deadline. But by mid to late September, as it became clear that the credit was going to be extended, sales should have picked up again. That should have translated into more sales in January. But it didn’t. And that may be the worst news yet about the housing market. If the housing market is no longer responding to the stimulus of tax breaks, the housing market might actually be in worse shape than we thought.
