by Steve Harney on December 28, 2009

This past week there were two different housing reports released. The first was the National Association of Realtors’ ‘Existing-Home Sales Report’ and the other was the U.S. Census Bureau’s ‘New Construction Report’. The most confusing part of the news is how divergent the data on the reports was.

The Existing-Home Sales Report showed a month-over-month increase in sales of a whopping 7.4%. Obviously, this was interesting news to anyone with a stake in the current market (buyers, sellers and real estate professionals). It showed that the market is gaining strength and looking much healthier going into 2010 than it looked going into 2009.

Then, just one day later, the New Construction Report was released showing that sales month-over-month had fallen by 11.3%. Again, interesting news to anyone involved in the market. It forced us to question what we were so sure of just the day before.

One report showed the real estate market as getting much stronger. The other showed the exact opposite. How do we make sense of the differences? By going beyond the headlines and taking a closer look at each report.

The numbers being reported were for the month of November. The Existing-Home Sales Report quantifies the number of resale homes that closed that month. The New Construction Report reports the number of new construction homes that entered into contract that month. So, as we can see, we are not actually comparing apples to apples in the reports.

Headlines

Additionally, November home sales (whether resale or new construction) had an outside force which had a huge impact on the numbers – the $8,000 Federal Tax Credit.

If we remember, the original end date of the Tax Credit was to be November 30, 2009 (the date you needed to close on your purchase to be eligible for the credit). Most experts did not believe the federal government would extend the credit (which it did). That meant that, as buyers were making a purchasing decision, they needed to buy a house that they could close on by November 30.

If they went to contract on a new home even in October there was a good chance they would not be able to close on it in time for the tax credit. So, as we got closer to the expiration date of the credit, more and more buyers saw a resale purchase as their only option.

The result?

Existing home sales went up and new construction sales went down thus explaining the differences in the two reports.

What does this teach us? Well, I think there are two points:

  • Existing home sales were not as strong as the report suggests and new construction sales were not as weak. It was not natural demand that created the differences. It was the outside influence of the tax credit.
  • More importantly, it shows us the power of the tax credit. The big question that must now be addressed is what will happen to all sales when the tax credit extension expires on April 30, 2010 (when a house must now be in contract). Will there be a huge drop-off in demand across the board the same way we saw it impact the new construction market in November?

There are reasons a buyer should buy now and those reasons have and will continue to spur demand. As the following table shows, once those reasons fade, so will demand.

Demand 2010

I think we must realize that the price you can get for your home this winter and early spring will be greater than what you can reasonably hope for in the second half of 2010 when interest rates will raise and the tax credit will disappear. As Forbes.com reported:

“Late spring and summer are usually thought of as the best times to put a home on the market because buyer demand builds steadily through spring … But this year, experts predict that the selling boom, which normally starts in spring, will hit at a different time than it has in the past. Sellers with flexibility should market their homes earlier in the year.”

If you are considering selling your house in the next year, now might be the time to put it on the market.

http://kcmblog.com/2009/12/28/home-sales-up-no-wait-down-no-wait/