Stimulus to Spur Home Sales?!

From Realty Times:

"Buyer are still hesitating on whether to enter to market, but the National Association of Realtors estimates "the impact of the stimulus package and lower interest rates on the housing market to be about 900,000 additional home sales in 2009 compared to conditions before the stimulus package."

I know the NAR's mission is to be cheerleaders for the real estate industry, but to say that the Federal Spending Spree aka: Stimulus will have anything but a negative impact on home sales is just plain dishonest. First of all, most of that money wont be spent until 2010 at the earliest. Second, the NAR needs to show specifically where in that spending is anything that can be shown to have a direct positive impact on home sales. Additionally, the unprecedented borrowing and printing of money that is coming will cause rampant inflation and drive up interest rates.

The current historically low interest rates should have already spurred home sales, but the paralyzing negative rhetoric coming out of Washington, along with the promise of higher income and energy taxes is enveloping the market in fear. Did the NAR miss the proposal to limit itemized deductions, especially on mortgage interest?

Having said that, I still believe now is the time to buy and borrow at fixed rates.

Bargain-Hunters Descend, Cash in Hand

Capitalism is starting to self correct the housing market as it will always do in every market if left alone. But the left would rather confiscate taxpayer money to institute feeble, inefficient and reckless interference in the process. Wealth is created by individuals empowered with economic freedom. Government creates wealth and power only for itself.

** "Falling home prices are spurring an increase in all-cash home sales in markets that have been hardest hit by the foreclosure crisis, an indication that bargain hunters have descended on the markets looking for deals.

Homes financed with cash comprised one-third of sales in Phoenix last month, up from 19% one year ago, according to a report by Raymond James & Associates Inc. In Sacramento, Calif., all-cash sales accounted for 24% of total home sales last month, up from 8% in January 2008 and 3% in January 2007, according to the Sacramento Association of Realtors. Sacramento and Phoenix have each ...

Home Sales and Inventory Drop

Two seemingly incompatible supply and demand housing statistics emerge that have different explanations:

"Sales of existing homes took an unexpected plunge from December to January, falling to the lowest level in nearly 12 years as pessimism about the economy grew and buyers waited to see how the new government would help revive the US housing market."

It must take a lot of intestinal fortitude to buy a home with all the uncertainty created by an intrusive federal government sending mixed and incoherent signals that paralyze investors and potential homeowners alike. It also doesn't help that Barack "Eeyore" Obama is constantly predicting doom in order to justify more incompetent government meddling in the economy.

But we have good news on the supply side of the equation:

"The number of unsold homes on the market last month fell almost 3 percent to 3.6 million, the lowest inventory level in two years. But due to the slumping sales pace, it would still take 9.6 months to rid the market of all of those properties, up from 9.4 months in December."

A healthy market should have around a six month supply. But as I posted earlier, this number should start coming down consistently as new construction has stalled and foreclosure rates will fall. In other words, there is very little new supply of homes coming to market and what little demand there is will pressure prices to rise or at least stabilize.

Time to Buy: Rent vs. Buy Gap Narrows

This is good news. From The Wall Street Journal:


"Now, after two years of rapid home-price depreciation, the relationship between the cost of rental payments versus after-tax mortgage payments is tilting toward ownership in a number of metropolitan areas.

Over the past 18 years, after-tax mortgage payments have averaged 26% more than rent payments, according to Green Street Advisors, a real-estate consultancy based in Newport Beach, Calif. In 2006, at the height of the housing bubble, mortgage payments reached as high as 66% more than rent payments. But by the end of 2008, average monthly rent for the largest 50 metropolitan areas was $1,045, compared with after-tax mortgage payments of $1,300, assuming a rate of 5.5% on a 30-year fixed mortgage. That means mortgage payments averaged just 24% more than rent payments, the narrowest gap since 2001."

END EXCERPT

This indicator has always been one of the best in predicting a revived housing market. If housing prices fall or rents rise to where the monthly payments are essentially equal, buyers start moving into the market at a much faster pace.

Additionally, interest rates are as low as they are going to get and will probably rise soon when the Fed tries to combat the coming high inflation that will result from the Government's massive spending and borrowing spree.

New housing starts are also at historic lows which means any new demand will reduce current supply and pressure prices upward, or at least stabilize them. New construction takes a long time and any significant increase in supply will lag behind a market revival by a year or two.

There is a window of opportunity here for anyone who is thinking of buying a home. Do it now with as much down payment as possible and get a FIXED RATE mortgage.

Why Are Home Prices Still Unaffordable?

Median home prices have fallen, but not enough to match income growth. Which means homes are still less affordable than they were seven years ago. If the real estate bubble has truly burst, then what's causing it? The main culprit is land use, environmental and planning regulations that take large swaths of land and either prohibits development or makes it prohibitively expensive. Much of it in places where housing demand is highest. The price of existing housing skyrockets as the supply is restricted. These regulations mostly benefit current homeowners who demand policies that price the less fortunate out of the market and trample on the property rights of others. To add insult to injury, liberals then demand developers set aside "affordable housing" as yet another condition in order to ameliorate the problems they created.

Chanting that they must "preserve the character" of the community or protect "environmentally sensitive" land, they can feed their sense of moral superiority and wallets by forcing others to pay the bill as they lock them out. They believe their ownership of property gives them the right to dictate the terms of other's ownership in order to benefit themselves. Ironically, many of these regulations wouldn't allow the current resident's homes to be built either had they existed at the time.

It comes as no surprise that the most expensive markets are the ones with the most strict and byzantine regulatory structures. Nowhere is this fact more striking than in California, the state with the greatest hostility to new development and by far the most expensive markets in the country.

Any study of home prices needs to adjust for the distortions these markets cause.