Housing market tenuous
Sales rose, but price drop may be hard to overcome
WASHINGTON – Sales of previously occupied homes rose in 2009 for the first time in four years, despite a December slump that was due to a tax credit that led many buyers to complete sales earlier.
Still, prices plunged more than 12 percent last year – the sharpest fall since the Great Depression. The price drop for 2009 – to a median of $173,500 – showed the housing market remains too weak to help fuel a sustained economic recovery.
Concerns remain that home sales will weaken after March 31, when the Federal Reserve is set to end its program to buy mortgage securities to keep home loan rates low. Once that program ends, mortgage rates could rise. Adding to the worries, a newly extended homebuyer tax credit is set to run out at the end of April.
Some analysts question whether the housing market can remain stable without the hundreds of billions in government spending now propping it up.
Once the Fed’s mortgage-buying program ends, analysts say rates could rise as high as 6 percent from the current level of around 5 percent for 30-year loans. That’s why some expect the Fed to either extend or expand the program after March, concluding that the housing market remains too fragile.
“You just can’t go from 100 miles an hour to a dead stop and expect it to happen without a big jump in mortgage rates,” said Greg McBride, senior financial analyst at Bankrate.com.
With median sale prices down 23 percent from their peak in summer 2006, homes have become more affordable in many markets. The tax credit has helped. Many of those active in the housing market these days are first-time buyers or investors looking to gain from the lower prices.
The poor December results reported Monday by the National Association of Realtors occurred after Congress extended the tax credit, easing pressure on buyers to act quickly. The credit of up to $8,000 for first-time homeowners had been due to expire Nov. 30. But Congress extended the deadline and expanded it with a new $6,500 credit for existing homeowners who move.
December’s sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the Realtors report said. It was the largest monthly drop in 40 years of record-keeping. Sales had been expected to fall by about 10 percent, according to economists surveyed by Thomson Reuters.