Mini Housing Boom Raises Hopes, Fears

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For several months, pundits and economists have warned that demand for housing and housing prices would fall steadily for the first six months of this year, after the end of a brief recovery last year.

Well, it hasn't happened yet. In fact, the latest stack of housing reports for March shows the opposite -- a mini-housing boom is taking root for springtime. Existing homes sold at a seasonally-adjusted rate of 5.35 million a year in March. That's up from 5.01 million in February, according to the National Association of Realtors. Even better, new homes sold at a seasonally adjusted rate of 411,000 a year after hitting a record low of 324,000 in February, according to the Commerce Department.

These latest reports follow strong news on new home construction and pending home sales. Several reports also revised their February estimates upward to show that the demand for housing is strengthening, not failing.

But don't celebrate too hard. We're calling it a "mini" housing boom for a reason.
First, the boom is being fueled by a big government program that expires this summer. To take advantage of the $8,000 federal home buyer tax credit, home buyers will have to sign a contract to buy by the end of this April, and they'll need to close the sale by June. The last time the tax credit came up for expiration in October, Congress renewed and expanded the credit, but home sales and other indicators still tanked in November and stayed low for months....So after June, all bets are off.

Also, this mini housing boom may not have a noticeable effect on home prices, which on average have been flat for months. That's because the demand for more homes is being balanced by the growing number of foreclosed homes and short sales coming onto the market. Banks seem to be taking advantage of the recovery to sell off some of their huge inventories of foreclosed properties: A third of all home sales in January were distressed, according to First American Core Logic.

Also, banks and the federal foreclosure prevention programs are working through their inventory of hundreds of thousands of homes that have wobbled for months on the brink of foreclosure. Last month the results were roughly split between homes left in the program which are likely heading into foreclosure and borrowers whose mortgages were modified.

So even though more people are shopping for homes, with all the distressed housing available, there are more than enough homes to chose from. As a result, we won't be able to remove the "mini" from "mini housing boom" until that excess supply is substantially tightened.
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