Drop in Home Sales

Is Drop in Home Sales Good News? Only if you want to thrive!

“For all of you out there who accuse me of perpetual bearishness, here's a twist: What if the drop in existing home sales in May is a good thing? Try to follow me on this: Everyone expected home sales to surge in May because this Realtor's survey is based on closings in May from contracts signed in March and April. The May and June numbers should reflect the surge from the now-expired home buyer tax credit. Well today's report showed a drop of 2.2 percent in existing home sales, leading us to believe that this last government stimulus really didn't do the trick. So what if it didn't? Last fall the tax credit really juiced the market, pulling demand forward, so that we saw a huge drop-off in the months following what we thought was the end of the credit, which was then of course extended and expanded.

So now we're not seeing the same juice, but the numbers aren't terrible either. Perhaps there was no big rush, so perhaps there will be no big drop-off. Here's what we do know: (a) First-time homebuyers accounted for 46% of sales in May (49% in April) (b) Investors accounted for 14% of sales in May (15% in April) (c) All cash accounted for 25% of sales in May (26% in April). So first time buyers actually fell in numbers, but investors and all cash (which are often investors) remained pretty steady. Investors, at least for distressed properties, are what we need right now to soak up all the excess inventory. Don't get me wrong, I'm pretty certain we're going to see a drop-off in sales. A lot of sellers probably got caught up in the idea that the stimulus would create lasting recovery, and so decided to jump in. Tomorrow we get the report on sales of new construction in May. That report is based on contracts signed in May, not closings, so it will give us an idea of just how bad the post credit hangover will be.”