Millions of Americans – and others, perhaps – are watching mortgage interest rates hit historical lows and mumbling about how very bad the timing is.
With the housing market flush with foreclosed properties and long-term interest rates scraping 4.5 percent – 30- and 15-year loans set record lows six weeks in a row this summer – the American Dream of a domicile with a white picket fence in a quiet neighborhood is within the grasp of more people than ever, if only affordability could be a little better timed.
As home sales held their own last year, the National Association of Realtors® pointed out that the $8,000 first-time homebuyer federal tax credit was, indeed, priming the pump. And the numbers were telling. As the first deadline for the tax credit came and went, a crush of buyers lined up for loans. When Congress extended the credit through April of this year, sales went through a second cycle of popularity, which ended predictably and precisely as the tax credit again came to a close.
In July, without the government’s help, the sale of existing homes fell 27.2 percent compared to June with the annual rate of home sales plunging to 3.83 million, well below expectations. The NAR, which released the figures, promptly pointed out that this new reality was how the market looked without the emperor’s new clothes – without, that is to say, the artifice of a tax credit to parade down Main Street.
By the numbers, first-time homebuyers fell to 38 percent of all buyers in July from 43 percent in the previous month.
In that sense, it is easy to shed crocodile tears for the tax credit, but some pundits are looking past that and hoping the government will stay out of the way and let the market do its ugly thing. Home prices held up in July, a silver lining in the collapse that may be temporary, as many expected prices to start falling.
The Washington Post quoted Mizuho Securities Chief Economist Steven Ricchiuto as saying, “Homes are still being priced without taking into proper consideration the balance sheet of the consumer. What consumer would buy them when they can’t afford them?”
That’s right: What the NAR calls a high rate of affordability now is the very definition of moot. After all, even consumers know you don’t apply for a loan when you are out of work.
The tax credit? Congress can slap that back into place before their morning coffee cools down. What needs fixing now is the job market, rising employment rates being, perhaps, the surest cure to deflation in an otherwise haphazard arsenal of government options.
Source: United Press International 2010, Anthony Hall
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