Thursday, July 15, 2010

MARKET TRENDS: Tracking housing market's next move

Look locally for the best data.

Sales of existing homes rose 7.6 percent nationally in April and the median home price increased 4 percent from a year ago, according to the National Association of Realtors (NAR).

The Conference Board Consumer Confidence Index rose to 63.3 in May compared to April, the third consecutive monthly gain. Although low compared to pre-recession years, the recent increase reflects consumers' confidence about job prospects.

The Institute for Supply Management reported that its business barometer was 59.7 in May. A figure above 50 suggests expansion.

This is good news for the economy. However, there are shadows overhanging the home-sale market and a certain amount of uncertainty about what the second half of the year will bring.

A concern is the expiration of the national tax credits for both first-time and repeat homebuyers. Most analysts agree that the tax credits were a boost to the market.

Some say the credits artificially inflated home sales. They expect to see a drop in sales volume and a possible decline in home prices going forward. Also, some say that these buyers would have bought regardless of the tax credits.

It will take months to determine what effect, if any, the lack of credits will have on the market. To take advantage of the credit, a buyer had to be in contract to purchase a home costing no more than $800,000 by April 30 with a closing date of no later than June 30.

Homes closing in May and June will reflect sales activity stimulated by the homebuyer credits. It won't be until July and August, typically slow months for home sales, that we will be able to see if the market slows.

HOUSE HUNTING TIP: Keep your eye on NAR's Pending Sale Index (PHSI). The PHSI is based on home purchase contract activity. It normally takes 30-60 days or longer from the date a contract is ratified by the buyer and seller to close a sale. Some sales that go into contract never close.

The PHSI index was designed to be a forward indicator. A lower pending index in May than in April could indicate a slowdown in home-sale activity, even though home sales for the month could increase due to closings of transactions negotiated in April before the tax credits expired. NAR releases the PHSI during the first week of every month.

Optimists are confident that today's near historic low interest rates will continue to encourage homebuyers back into the market. Combined with lower home prices and more homes for sale in many areas, this could be one of the best times to buy in decades, if you can find the right home that will suit your long-range needs and you qualify for the financing you need to complete the purchase.

NAR's chief economist Lawrence Yun expects the median home price to rise nationally 2 to 3 percent this year. He does not think foreclosure sales will derail the housing market this year.

Mark Zandi, chief economist at Moody's, believes the housing crash is nearly over. He thinks we're close to the bottom, but that we won't see price growth in 2010 or 2011.

Zandi sees foreclosures rising in 2010 before declining in 2011. If you buy now, home prices could decrease some before increasing. If you wait, interest rates could be higher.

The home-sale market is highly localized. According to research company MDA DataQuick, San Francisco Bay Area home sales fell 1.2 percent, but the median home price was up 22 percent in April from a year ago. Las Vegas-area home sales fell 0.2 percent, but the median sale price was down 0.7 percent from April 2009.

THE CLOSING: Look at sales activity in your neighborhood to get a complete picture.

Dian Hymer Inmsn News July 12, 2010

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