Bracing for Second Real Estate Collapse?
Recent reports of home sales and pending contracts are favorable. But is this just the calm before a second storm? Typically, the economists can’t seem to agree.
The National Association of Realtors reports that its index of sales agreements for existing homes rose 5.3 percent from the preceding month. The index is now at its highest level since October 2009.
The Census Bureau reports new home sales were up 27% in March compared to February.
So why are many economists predicting another drop or at least continued malaise in real estate sales and property values?
There are several reasons. First, most experts concede that much of the recent increase in sales activity was spurred by the now expired tax credit. Second, mortgage rates remain low, probably artificially suppressed by government policies that cannot be sustained. Third, there is still a huge inventory of pending and likely foreclosures. Finally, there cannot be a full or real recovery until the unemployment rate declines significantly.
In other words, conditions exist for a second decline in home sales activity and values.
The Case-Shiller Home Price Index for February 2010 shows mixed results, with the 20 city index up 0.6% over February 2009. However, 11 of the 20 cities in the index actually showed declines. (Source)
If you decide to follow the cheerleading of the real estate trade groups, you will be told that everything is awesome. I suggest that before you make any investing or other personal finance decisions based on the future of the real estate market, have a listen to this NPR program, featuring four top notch experts in the field.
Remember, if the market falls again, there will be plenty of bargains available, even if interest rates increase.