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Opinions and observations expressed on this blog reflect the authors' individual experiences and should not be construed to be financial advice. None of the members of this blog are licensed financial advisors. Please consult your own licensed financial advisor if you wish to act on any recommendations here.

Monday, August 23, 2010

Prepare for Apocalyptic Home Sales Numbers

As we have been discussing for a while now, home sales are likely to be quite weak following the expiration of the home buyer tax credit. "How weak?" you might ask? Well, let's just say they could be the lowest in any relevant time span. The expectation of economists is probably way off this time as is being discussed over on Calculated Risk.

If these sorts of sales rates are maintained (if that is the proper word to use here) prices will certainly decline again, which has been our expectation here. What that means is that even now might not have been the best time to buy a house as you will not be building up equity. Of course, it depends on the market, but most will be quite weak.

Now, as for whether or not this will push us into another recession, I don't think so. Existing home sales, which are the bulk of home sales, really aren't that economically productive as they don't reflect the production of new goods. New home sales are really about as low as they can go and were probably actually depressed by the credit pushing more people into existing homes. A decline in prices may make banks a little more skittish, though it would be hard to see how they could be more tight-fisted than they are now.

3 comments:

  1. It's so much worse than we all thought! Oh the humanity!

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  2. More seriously, I read this article at work this morning (I'm so busy) and it seems to be a pretty reasonable addendum to the news on purchase decline.
    http://www.nytimes.com/2010/08/23/business/economy/23decline.html?src=me&ref=business

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  3. Great find and I read that myself at work yesterday as well even though I actually am ridiculously busy these days (I just don't get home until 6:30).

    One interesting point is that home prices don't beat inflation by much over time, even in favorable markets. Now, that's not the best way of looking at it because after all you leverage your house so it is better to look at the return on equity rather than just the home price. However, then you have to back out the carrying costs of your house (taxes, utilities, maintenance, and of course interest). Putting it all together makes housing a bit of a trickier investment proposition. It's not to say you can't make money, but you have to be shrewd and have a bit of luck.

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