There are going to be some tough headlines written about the housing market over the next several months. They may create apprehension and in some cases outright fear. The good news is these headlines will not reflect what is actually taking place in real estate. Some in the industry say we should just ignore this media blitz of problematic stories. That would be similar to trying to ignore a growling creature lurking in the shadows in the corner of the room. Instead, we want to shine a bright light into that corner to honestly evaluate how dangerous the creature actually is.
PROBABLE HEADLINE: Sales Plummeting. Housing Market Crashing
THE FACTS: The National Association of Realtors' Pending Sales Report is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed.
The pending sales reports covering September, October and November will be UGLY. The reason is that the houses going into contract in those months this year will be compared to the same months last year. In 2009, sales were skyrocketing as we headed toward the original termination of the Homebuyers' Tax Credit on November 30. It will appear as though this year's sales fell off a cliff in comparison. The headlines will be brutal.
Actually, the tax credit just pulled sales forward. Last fall and winter, pending sales dropped dramatically after November 30. Over the next six months, approximately the same number of homes will go into contract as did last year during this period. They will just be spread more evenly over the six months.
The National Association of Realtors' Existing Home Sales Report is based on home closings. The extended tax credit expired on April 30 this year. Like last year, the tax credit pulled demand forward, this time from the summer months. That left a vacuum of homes going into contract during this past summer. That vacuum will create a lack of closed sales throughout the next few months.
Actual sales will be approximately the same as last year. However, because the tax credit moved sales into different time periods, both the pending sales reports and the existing sales reports will appear very weak over the next few months. The Bottom Line
The headlines will be reporting 'doom & gloom'. In reality, the market will be no worse than last year. There will be no reason to fear the creature in the corner. It will be a figment of a misinformed media's imagination.