Much has been made in the press lately about the fall-off in home sales from June to July 2010, with home sales down 27% nationally. My first reaction is, “Duh!” Was there ever any doubt that the month after the second tax incentive program in the last year would be weak? Wasn’t the point of both programs — to accelerate home purchases? Accelerating demand into a chosen timeframe can have only one result — a vacuum in demand in the periods in which those buyers would have acted without the incentives. This was absolutely, 100%, fallin’ off a log, without-a-doubt predictable to anybody who chose to pay attention to reality. Why, then, do “observers” seem surprised? Does this development deserve so much ink? A simple “told you so” would have sufficed, instead of writing this up like the sky is falling!
Here’s what happened in the Austin metropolitan area (click image to enlarge):
The green graph shows monthly single family home sales in the Austin metropolitan area from July 2009 through July 2010. The decline from June to July? 26.5% — very nearly the average change nationwide. Note the previous four months, however, and compare them to last September, October, and November — months that were inflated by last year’s homebuyer tax incentive. Moreover, note (in the purple chart) that the number of pending contracts in July was essentially even with June. One might argue that that makes sense since a last-minute extension of the tax credit program allowed for closings as late as September 2010, but I believe that most of the tax credit effect was felt in earlier months.
As another point of reference, compare monthly sales in the past two years:
|2009||2010||Yr to Yr
Granted, neither of those two years compares to 2006 and 2007 (see AustinMarketDashboard.com), but year-to-date 2010 has been relatively strong, even taking into account the June-to-July cliff.
I have argued against these homebuyer tax credits since the first rumor of the first program last year for exactly this reason — artificially distorting market demand may “feel good” while it’s going on, but market reality is still waiting at the other end. If you’re reading this and are in a position to influence government decision making, please tell them to “STOP HELPING!” Was there a need for a boost in Phoenix and Las Vegas and Sacramento and Fort Lauderdale? Probably. Was a national, one size fits all, program the right solution? Probably not, even for those hardest hit markets. The market will heal itself if we just let it happen. Sure it may be painful, but it will be over faster and at least the housing sector of our economy can get back to work, and help the rest of the economy move forward as well.