Breakdown of July's Existing Home Sales Data

The release last week of July's existing home sales figures from the National Association of Realtors was all over the news, where it was spun mostly as a sign that we might be headed for a 'double dip' recession driven by a continuing weakness in the housing market. If you dig a little deeper into the numbers though you see that what we're seeing isn't so much a weakening housing market, as a tale of two housing markets: the market with the $8,000 tax credit and the market without it.

Home sales in the first six months of 2010 were VERY strong because many buyers rushed to buy in order to qualify for the federal tax credit. I can't blame those buyers for locking in that free money at the time, but we shouldn't be surprised that the market tanked after the tax credit expired. It makes perfect sense that fewer people will rush to buy if the $8,000 incentive is off the table. The fact that sales only dropped by 27.2% from June to July nationwide is actually not too bad when you consider that tax-credit eligible buyers were the driving force behind a majority of sales in the first half of 2010. In fact, we're still on pace for 5 million home sales in 2010 which is 0.6 million more than the average over the past 30 years. Another good sign is that even though fewer homes sold in July than in previous months, prices actually inched up. In my neck of the woods (the Northeast), prices climbed 4.8% relative to a year ago. This is great news because rising prices are one of the keys to giving buyers the confidence to re-enter the housing market without the assistance of the tax credit.

The other key to increased buyer confidence is an improving employment picture. Once prospective home-buyers see home prices rising and feel confident in keeping their jobs they'll be ready to pull the trigger on a home. Unfortunately the jobs picture is one piece of the economy that's still a little blurry - keep an eye on employment numbers to gage when, and how strongly, home sales will rebound to the levels we saw earlier this year.