Posted on September - 25 - 2010
Were tax credits merely opportunities to buy forward?
Sales of previously owned homes are currently a critical factor in the American economy. This is because these days they are often either a reflection of a seller in financial crisis, or a bank with unwanted inventory. Either way, low turnover in the property market swings the advantage towards buyers, and prices fall. This is why the improved volume of sales of these properties last month could be good news – even though that month was still the worst in over ten years.
The monthly increase was 7.6% according to the National Association of Realtors (who used the seasonally adjusted method to calculate this) although August was still 19% down year-on-year. July was the worst month for previously owned home sales in 15 years. The driver behind low sales is low consumer confidence – why increase your debt when you might lose your job through no fault of your own? The economy is also staggering under the weight of unemployment and rising repossessions too.
Government tax credits this spring proved that homebuyers are still after bargains, and will move when prevailing conditions suit them. Unfortunately, this potential is not open-ended, and all that actually happened is that they surged ahead, causing the dip that followed. It almost seems like America sold some family silver. Since then, things have gone quiet despite bargain prices and the lowest interest rate for decades.
A realtor in the San Diego area with many years experience agrees that buyers are still nervous. “Nobody wants to see their investment go down after they buy it,” he told me. “It’s as tough as I’ve ever seen it.”
The glut of foreclosed houses on the American property market, and the effect of short sales too are holding prices lower than construction prices that allow fair profit. Hence, the guns of homebuilders whom the nation often relies upon to repel recession have fallen largely silent because they cannot compete with market forces. Close on 2.5 million American families saw their fortunes smashed in the foreclosure vice since the troubles began in December 2007. Analysts forecast that a further 3.3 million may yet follow suit.
Others are hoping that the uptick last month heralds an improvement. Then they were 14%, 8% and 5% better in the West, Northeast and Midwest / South respectively.
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