The National Association of Realtors (NAR) reports that the housing market has come out of its tailspin, lifted by falling home prices, low mortgage rates, and an $8,000 federal tax credit offered to some first-time home buyers. Now, let's look at reality or simply the facts.
First, the $8,000 tax credit expires at the end of November. What this has done has brought housing demand forward, especially at the very low end of the real estate market. Something like the $4,500 "Cash for Clunkers" program that ends this coming Monday. Once the special incentives end, what do we do for an encore? Where is the demand going to come from?
Second, two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage. One in eight households with mortgages was in foreclosure or late (90 days or more) on their mortgage payments in the second quarter of 2009, which is a new high.
Third, home sales are roughly where they were last year at this time. Last year at this time, the NAR had called the bottom was in after sales of existing homes hit a five-month high.
Fourth, prime loans extended to borrowers with good credit are deteriorating at a faster clip as falling home prices and mounting job losses weigh on more households. These prime loans accounted for 58% of foreclosure starts, up from 44% last year.
Where is the real improvement? Yes, the $8,000 tax credit and $4,500 "Cash or Clunkers" program will push the real growth for GDP to the positive during this quarter, but such growth based on governmental incentives is not sustainable!
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