First-time buyer Denise DelSignore, 37, for example, said she had been looking in the Boston area for the right home for about a year and that, though she could have kept on looking, the availability of the tax credit incentive gave her the goal of pulling the trigger before the November deadline. She put 20% down on the purchase of a recently remodeled two-bedroom, one-bath, 1,550-square-foot, two-story home for $275,000 in North Attleboro, Mass., and she got a mortgage with a 5.5% interest rate. Despite competition from another buyer, she managed to bring the sellers down from their asking price of $290,000.
"It was the best house that I had found in my price range, and I was concerned that if I didn't act on this one, I wouldn't close in 2009 and wouldn't have been able to take advantage of the tax credit," said DelSignore, who manages a portfolio of commercial real estate. (To learn how the tax credit works, read "Got $2,500? Buy a house.")
Despite the runaway success of the tax credit, bridge loans meant to help buyers like DelSignore get the tax credit money in time to make a purchase have been mostly unavailable, according to the Realtors group. "Few (FHA-approved) lenders are currently offering these bridge loans," says the Realtors' Web site. (Read more here.) State housing finance agencies also offer the loans, but they've been hampered by limited funds.
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Fragile recovery
All this is not to say that that the severe housing downturn -- or the recession -- is over. (Read "When the recession will really end.")"As an economist, I'm concerned we haven't built the momentum we need to go from this induced demand to real demand," said Crowe, of the homebuilders group.
Even if the increase in sales can be sustained, prices may keep falling for a while. Menegatti predicts an additional 10% drop in the national median home price, for a total 40% loss in home values from their peak in 2007. Other economists believe prices may have bottomed. As with all wisdom on housing, much depends on where you live. It's not at all certain, either, that sales will stay strong once the tax credit expires.
Other problems that have the potential to drag housing back down include:
- Unemployment. Joblessness continues to be a serious threat to any housing recovery because it is the biggest reason for foreclosures. Unemployment still is growing, albeit more slowly, with 247,000 jobs lost in July compared with an average of 645,000 a month in November through April, according to the Bureau of Labor Statistics' most-recent report.
- A glut of homes for sale. In June, the latest figures available, housing inventory was at 9.4 months, meaning it would normally take that many months for all the homes for sale to be purchased. Inventories hit a peak of 11.3 months in April 2008 and were at 11 months in June 2008, so there has been progress. But a "balanced market" -- six to seven months' supply -- when buyers and sellers have about equal leverage is far away and was last seen in early to mid-2006, as housing was starting to cool off. At the bubble's height, in December 2004 and January 2005, inventories were at a four- to five-month supply.
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- Foreclosures. As people lose jobs, they continue to lose their homes. RealtyTrac reports that 1.5 million received foreclosure notices in the first half of this year. Some observers worry that banks are sitting on lots of repossessed homes now, waiting to sell them after the market picks up, which could depress prices further. But Paul Bishop, the National Association of Realtors' managing director of survey and market research, said that may not be as bad as it sounds, given buyers' current appetite for repossessed homes. "It goes back to Economics 101," he said. "There's a price for everything."
- Weak banks. Banks weakened by their portfolios of failing loans are also contributing to the fragile economy, analysts say. (Read "The bailout: An owners' manual.") Banks can't recover until the mortgage loans they bought as securities stop failing.
- Tight credit. Banks have begun making more mortgages available to middle-income homebuyers with strong credit, but banks still are blamed for choking credit to homebuilders, and jumbo (over $417,000 in most areas) mortgage lending remains tight. Right now, builders can't get credit to respond to the new demand for entry level-homes, Crowe said.
Despite still-large inventories, demand is growing for small, affordable new homes in some markets. For certain buyers, only a new home will do. "Our builders are telling us they are reducing the size of their homes and curtailing the amenities in order to build to the first-time market, because that's where the action is right now," Crowe said.
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