Following up on a post a couple of days ago about the coming end of homebuyer tax credits, and of the Fed's program of buying mortgage-backed securities, I took note of this article over the weekend:
Housing sales drop; GDP revised upward
Two months of consecutive decline is worrisome, and even Austin and Central Texas participated in this weakness. As always, I track the movement of the Austin Metro real estate market on my AustinMarketDashboard, and the decline is visible there, as is the usual price weakness that accompanies weak demand. Average home prices in Austin have now been below the long-term trendline for more than a year.
It is interesting how much this recovery now looks like 1990-1991, the last time we had a similar meltdown in the financial industry and a relative flood of foreclosure activity. We also had a "double bounce" in 2003-2004, but that was a more typical, cyclical downturn. 2009-2010 represents another systemic problem.
On the other hand, the bottom of every market downturn in Austin in the past 20 years has been when the "odds of selling" (% of active listings sold in a month) reached about 10%. (See Longterm Dashboard.) I continue to believe in the power and wisdom of the market. The most recent slump followed the end of external market manipulation in the form of first-time homebuyer tax credits. When buyers chasing that credit saw that they could not complete their purchases in time to qualify, they stopped. The extended and expanded credits that are now available were announced with months-away deadlines, so there was no pressure to begin shopping and buying again immediately. Sure, we'll see another push in the next couple of months, but what then?
I wrote last year, when the first tax credit program was just a rumor, that I did not want to see sales incentives to become a permanent feature of the real estate business. It is unhealthy and self-perpetuating. Car manufacturers began offering incentives and rebates many years ago. At first they were occasional and temporary. As time went by they became larger and more frequent. Now the car-buying public assumes that they deserve a discount or a rebate or interest-free financing or ... or ... or ....
Is this really the way we want our economy to work?
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