From the National Association of Realtors:
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million in February, and are 16.1 percent above the 4.61 million-unit level in March 2009.
Sales of new homes surged 27 percent in March and orders for most durable goods climbed, indicating the U.S. economy sped up heading into the second quarter. … The gain in new-home sales was the biggest in 47 years as buyers rushed to qualify for a government tax credit and the weather improved, a Commerce Department report showed.
The government is trying to reflate the housing market after the collapse of one of the most powerful housing booms ever in the U.S. The Obama Administration and most Republicans and Democrats in Congress believe this is a positive force for the economy. If the housing bust taught us anything it is that the housing market was way overbuilt and overpriced and that price increases cannot be infinitely sustained.
Until excess supply is liquidated the housing market will continue to tie up valuable capital in these overvalued homes with their under-secured debt. The only thing that will accomplish this cleansing liquidation is continued declining home prices which will continue until the market tells us that prices meet consumer demand and lenders feel comfortable lending. At that point balance sheets will be cleared off and bank and the financial structures supporting the housing market (yes, mortgage backed securities) will be able to raise new capital to fund this market.
This is one of things that is tying up the credit markets.The other major factor is commercial real estate and their loans that are still held by regional banks (the majority of CRE). CRE is now in the process of a liquidation and deflation unless the government steps in to further “help” these lenders (extend and pretend and other programs). Credit will remain frozen until the debt associated with these assets are liquidated, banks go belly up, and new or healthy lenders step back into the market.
We have discussed in this blog many times the overhang of potential foreclosures in the housing market. The next two years will keep depressing housing prices. This is deterring the formation of new credit for this market thus the sooner liquidation happens, the sooner we will recover. In the meanwhile we will continue to face a credit freeze and declining asset values (deflation).
It is these ill-conceived programs that the government sponsors that achieve the opposite of what they are trying to accomplish. If they aid the liquidation rather than trying to reflate prices in a declining market they would achieve their goal of a revived housing market. The housing and CRE markets are simply too large for the government to make any useful impact. While the FHA is now responsible for 30% of residential financing, it cannot stop declining prices. It will just further put taxpayers at risk as we have to bail out yet another agency because of our leaders’ failure to understand economics.