The US housing market appears in danger of another crisis which could further hinder the recovery of the overall economy. Sales of previously owned homes fell in May as the federal tax credits for home buyers came to an end. In addition, nearly a third of all May sales came from foreclosures or other distressed properties, meaning prices may take another plunge after having stabilized over the last year.
May’s sales came in at a seasonally adjusted rate of 5.65 million, a 2 percent drop from April. Analysts fear that sales will fall even further in the next few months when the tax credits are gone. The majority of analysts, however, do not expect the struggles in the housing market to force the nation back into recession. After a summer plunge in housing sales fall is expected to bring rising sales as unemployment starts to fall.
Since last January, when existing home sales bottomed out at 4.5 million, sales have climbed 25 percent. They are, however, still 23 percent below the 7.2 million annual rate set at the peak of the housing boom in September 2005. The reports count home sales after closing, meaning that the paltry sales were actually still boosted by the tax credits. In order to qualify, buyers had to have signed a purchase agreement by April 30th, but have until June 30th to close.
Analysts had expected the tax credits to boost sales in both May and June. The National Association of Realtors claims that delays in the mortgage process have put close to 200,000 buyers in jeopardy of not closing in time to qualify for the credits. The group is currently pressuring Congress to extend the closing deadline to September 30th.
Realtors nationwide are reporting a slowdown in showing homes, which is a troubling sign for sales in the coming months. Also a potentially troubling sign id the number of foreclosures and other distressed properties. Such sales accounted for more than 30 percent of May home sales, and could rise in coming months as the government’s efforts to help homeowners save their homes have had only moderate success.
The Obama Administration’s $75 billion mortgage modification program has seen more than a third of the 1.2 million homeowners who have signed up for the program drop out, while just over 26 percent have actually seen the program deliver a loan modification and are back on track.
The May sales plunge affected the Northeast the worst, with sales dropping 19 percent in the region. The Midwest saw home sales remain unchanged from the previous month, while the West and South enjoyed small rises in sales. The inventory of homes on the market dropped slightly to just under 4 million, which would take 8.3 months to exhaust at the current pace of sales. A six month supply is considered healthy for the market.
First time buyers, drawn into the market by the expiring tax credit, accounted for just over 45 percent of sales. The median sales price for May was just under $180,000, about 2.8 percent higher than in May 2009.
Locally, the Marin real estate market has seemed to have cooled. Even though the tax credit did not mean that much to potential Marin homebuyers, there still has been a rather sharp decline in home sales.