Home Sales Jump - The Good and Bad

The real estate market has been so brutal for so long that it is often hard to find anything to be particularly excited about. Well, there is finally some great news – home sales jumped over ten percent in October 2009. This news, however, comes with some good and bad twists.

So, let’s start with the good news. The pace of sales jumped! This may seem somewhat ambiguous, but it is not. One of the huge problems in real estate is the simple fact that there is a mass of inventory sitting around. As with any product, excessive inventory will drive the price of the product down. Between short sales, foreclosures and bankruptcies, the real estate market has a ton of inventory sitting around. The fact that we are finally seeing a pop in sales rates is indicative that the inventory is starting to drain…or is it?

While the home sales jump is a great development, the reason for the jump takes more than a bit of luster off of the news. Are real estate investors coming back into the market? Are banks lending again? Are we past all the horror? Um, no. The single biggest reason for the bump in home sales is the first-time home buyer’s tax credit. The $8,000 tax credit was set to expire at the end of November, but was recently extended. Home buyers, of course, didn’t know this in October and rushed to beat the deadline.

The question is what will happen now that the deadline has been extended? Well, one only has to look at the Cash for Clunkers program for the auto industry. That program drove sales through the roof, but the momentum evaporated when the program expired. Given the current state of the economy, there appears to be no objective reason that home sales will rise substantially on their own regardless of the government programs put in place.

What is the key to turning things around? The answer is simple – jobs. The economic outlook is highly dependent upon consumer confidence. For consumers to be confident, they have to have work. Until the unemployment rate drops dramatically, the real estate market will remain tepid at best.

Home Sales Jump - The Good and Bad