Big numbers coming in from the real estate industry:
Sales of newly built homes shot up 27 percent in March — the largest monthly gain in nearly five decades — as mild weather and a lucrative tax credit pumped up demand for homes in all four regions of the country, according to federal data released Friday.
The Commerce Department reported that new-home sales jumped to a seasonally adjusted annual rate of 411,000, reversing February’s record low and far exceeding the expectations of many experts who track the industry.
“We needed a grand slam . . . and we got it,” Patrick Newport, an economist at IHS Global Insight, wrote in a note to clients.
Economists disagree on whether the sales momentum can be sustained, especially after the tax credit expires. But many economists say that some buyers who were deterred by the storms that gripped parts of the country in February clearly were rushing to beat the tax credit deadline.
The numbers look great, and we’d love to say this is a recovery, but the real estate market is just waiting to be absolutely destroyed yet again. Charles Sizemore of HS Dent Investments doesn’t think there is a recovery on the horizon:
In January, we wrote that this would happen (see â€œHousing Sales Slow With Expiration of Tax Creditâ€œ), and the reasons shouldnâ€™t be particularly surprising.Â The $8,000 first-time homebuyer tax credit expires at the end of April, and there is a widespread belief that mortgage rates will be rising soon.Â So, we fully expected to see a mad dash to buy a house in March and April, and that is exactly what we are seeing now.
But donâ€™t get too excited here; the abnormally high surge in sales this spring are pulling forward sales that would have normally happened over the peak summer months or at some indeterminate point in the future.Â Â This is not the start of a new trend, and we would expect sales to plummet over the next few months.
Let us be clear: we DO expect a rebound in the starter home market due to favorable demographic trends.Â There has been very little in the way of new construction for several years now, and the first of the Echo Boomers are starting to inch into their homebuying years.Â So we WILL see improvements in the starter home market â€” eventually.Â Â But for the time being, we expect much more weakness in virtually all market segments.
For those just joining SHTF Plan, we direct your attention to the next wave of the collapse, starting right now and lasting through about the middle of 2012. As interest rates on homes start to reset, and those folks who were paying those 1% teaser rates, they are about to see their monthly mortgage payment jump to the moon. If you’re already strapped, and your payment jumps from $1200 a month to $1650 a month on a 2% upward adjustment in your interest rate, you’re toast (Visualize Wave Two). And it won’t stop there, as most variable rate mortgages allow for adjustments every 6 to 12 months, so your rate could adjust upwards up to somewhere around 6% (depending on your loan) over just a year or two. This is going to affect millions of Americans.
Also, don’t forget about the millions of homes that are either in delinquency (haven’t paid their mortgage for over 60 days) or are sitting in the foreclosure shadow inventory. We don’t really know what these numbers are, but some estimates have them at 7 million or more.
Once the tax credits disappear, the stimulus ends, and these foreclosed homes start getting marked appropriately on bank books, it’s all coming down – heck, it might come down before that. Expect real estate values to be destroyed. What’s really going to hurt the real estate market, is that even though prices might fall 20% or more from here, mortgage rates are going up because of all the money printing and debt being created by Washington. This may make it twice as hard for housing to recover. Back in the early 80’s mortgage rates were over 10% – hard to believe, but it can certainly happen again.