Down 26% in Mass. after credit expires
A precipitous drop in home sales in July following the expiration of the federal home buyers tax credit has economists and housing specialists worried the real estate market has stalled and will further undermine the economic recovery.
Although housing specialists had anticipated a drop-off in July after the expiration of the $8,000 first-time buyers credit, the decline was much worse than many had expected: 26 percent fewer home sales in Massachusetts than a year earlier, in July 2009, according to data released yesterday, bringing the number of sales to a 20-year low for that month.
A similar drop was recorded across the country. The National Association of Realtors reported home sales fell 27.2 percent nationally from the previous month, with sales of single-family homes at their lowest level since May 1995. Economists surveyed by Bloomberg News had predicted a 13.4 percent decline from June.
The results shook Wall Street, sending the Dow Jones industrial average down 1.3 percent, as investors worried that a slowing housing market will create a cycle of declining economic activity.
Karl “Chip’’ Case, a retired Wellesley College economics professor and longtime observer of housing markets, said the July sales figures were both surprising and disappointing. But he stressed it is still too early to say if the economy is in danger of slipping back into recession.
“I pray it’s not a double-dip,’’ he said. “There’s a lot of uncertainty in the world. It’s a slow recovery.’’
The July figures had many housing specialists and economists struggling to understand where the economy is going. Some, such as Lawrence Yun of the National Association of Realtors, said the numbers reflected buyers speeding up their purchases to meet the June 30 deadline for the tax credit. The housing market, he said, will need a few months to adjust.
Others said it reflects a basic weakness in real estate that does not bode well for the economy.
Nigel Gault, chief US economist at IHS Global Insight in Lexington, said the low numbers prove that the housing market cannot stand on its own, and needs government help, such as the tax credit, to prop it up.
“Clearly the housing stimulus was a waste of time, just shifting demand around,’’ Gault said. “There may be some broader fixes that could improve the housing market, but we’ve had no success in finding it.’’
(Congress recently extended the deadline for closing on qualified homes to Sept. 30, so long as there was a binding contract in place by April 30.)
The disappointing sales tally comes just two weeks after officials at the Federal Reserve acknowledged that major sectors of the US economy, including housing, remain weak or are backsliding. Unemployment in Massachusetts is 9 percent, and it is 9.5 percent nationally.
Moreover, there are several indicators that suggest the market is in for more than simply a period of adjustment. The inventory of available homes for sale is on the high side, indicating there are more sellers than buyers.
The Massachusetts Association of Realtors said inventory, at nearly 10 months of supply, is 10 percent bigger than it was last year at this time. High inventory can bring falling prices, a concern as the market heads into the slower winter season.
A study by Altos Research LLC, a real estate data tracking firm, found that nationwide housing inventory is rising rapidly and calculated that Boston’s housing inventory has grown 3.76 percent since May. Scott Sambucci, vice president for data analysis, said Boston appeared to be leading the country out of the housing crisis a year ago, but that was probably due to the effects of the tax credit and low inventories.
Now the region appears to have “hit a glass ceiling and is struggling.’’ He said sales generated by the tax credit masked the housing market’s true condition of being stuck in a slowdown.
“It’s easy to do a stop-gap measure like [the tax incentive] and say things are getting better,’’ Sambucci said. “But we never fully came out of the first dip.’’
Another factor is that mortgage rates that continued to plumb new lows still weren’t enough to nudge buyers into action. Rates for 30-year loans averaged around 4.5 percent in July and have since dropped further; meanwhile 15-year loans have now gone below 4 percent.
Case said low mortgage rates might pull buyers back into the market, but added he had “no conviction in the idea.’’
The housing market may also still be suffering from self-inflicted wounds that will further delay its recovery.
Nancy Quinn, chief executive of Prudential Prime Properties, which has 19 offices in Massachusetts, Maine, and Rhode Island, said there is both a roadblock and backlog at the lending level that is slowing sales.
She said brokers are telling her daily that banks are either limiting credit (as a way to compensate for lax lending policies that led to the foreclosure crisis) or are swamped by the sheer number of delinquent mortgages that need attention.
“Everybody keeps blaming the first-time home buyer program, but I’m not sure about that,’’ she said. “I think the problems are going to be stretched out for years to come.’’
Quinn labeled the drop in sales as “huge.’’ Last month buyers in Massachusetts closed on 3,668 single-family homes, compared with 5,726 single-family homes the month before, according to Warren Group. It was the first time in 2010 that sales declined from the previous month.
Timothy M. Warren Jr., chief executive of Warren Group, said it is hard to know whether the drop is temporary, but he said he thinks many would-be buyers are being cautious and that pent-up demand will grow and eventually bolster sales.
“Consumer confidence plays a role in this,’’ Warren said. “People were feeling fairly optimistic in the early part of spring, and that has turned a bit gloomier as the hoped for job creation numbers just haven’t as been robust as expected.’’
Saul Cohen, president of Hammond Residential Real Estate, which has 14 offices in Greater Boston, said predicting the next few months is tricky but he senses that consumers are more pessimistic.
“We’re still in a period of slow new bookings,’’ he said, referring to properties under agreement. “We’re still holding our breath.’’
Megan Woolhouse Boston Globe August 25, 2010