Home Buyers Are More Bullish on Real Estate Than Home Builders
In another measurement of the industry's strength, the National Association of Realtors said pending home sales, a forward-looking indicator based on contracts signed, have risen for nine consecutive months. Pending home sales were up 3.7% in October compared to September, and up 31.8% compared with October 2008.
Congress recently extended a tax credit for home buyers, giving first-time buyers until April to claim an $8,000 tax credit. Those who have owned a home for five consecutive years can claim a $6,500 credit for a new home purchase.
"The tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future," said Lawrence Yun, the association's chief economist.
Another factor in rising home sales is interest rates. The Mortgage Bankers Association said rates on a 30-year fixed-rate mortgage increased to 4.88% in the week ended Dec. 4 from 4.79% the previous week. But that was still below the 5% level, the lowest interest rates since the 1950s. Mortgage loan applications climbed 8.5% during the period.
But before real estate bulls get too excited, there is still reason for concern. Speaking about southern California, John Walsh, MDA DataQuick's president, said "the market is still really lopsided. Foreclosures and short sales are huge factors. There's still not a lot of discretionary buying and selling."
Home builders seem to be in the pessimists corner, with with the latest reading of the National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index falling one point to 16 from 17 in November to reach its lowest point since June. Readings below 50 indicate home builders view the current market as poor.
That didn't stop Robert Toll, chief executive officer of Toll Brothers home builders, from saying he believes housing may have bottomed. "We don't know how fast we're coming back, but we do know we're coming back," Toll told Bloomberg. "There's a pretty good reservoir of pent up demand."