Pending home sales 'fell off a cliff'

Most economists and financial experts expected home sales to drop off following the April 30th Home Buyers tax credit deadline. They were right.

According to the National Association of Realtors, home sales fell an astounding 30% in May. What may be most incredible is that the sales are down 15.9% from May 2009, when we were just starting to emerge from the recession.

Tax credits, while valuable for the people who can claim them, usually do not impact behavior all that much. People will buy homes if it makes sense for them, not just because they may get a tax break. That logic holds true here. The Home Buyers credit did not motivate new sales. Instead people who were already planning to buy a home simply changed the timing of when they would buy. So, there was a rush to close the sale before the credit expired. People who may have waited until later in the year already closed the deals. Frankly, I don’t think the huge drop in pending sales should be surprising.

Lawrence Yun, the chief economist for NAR believes that home sales will improve once the economy is more stable and unemployment drops. Once that happens, Yun expects home sales to increase dramatically, so long as the favorable prices and mortgage interest rates continue.

Makes sense to me, you can’t buy a home if you don’t have a job. Do you think our real estate market will reach the highs of 2006 again in our lifetime? Tell me your predictions at @ronideutch/Twitter or on Facebook.

You can find out more here.