So today’s headline is that home sales have plunged 27% from June to July according the National Association of Realtors – and this seems dramatic and perhaps even surprising.  Though, this is an artificial drama being put on by people trying to get ratings.  It should be by no means surprising, and frankly shouldn’t have a huge impact on the market.  Let’s take a look at some facts, local figures and a timeline that might help with perspective on this issue.

• Feb. 2009 – $8,000 First Time Homebuyer Tax Credit Announced
  The housing sector of the economy is weak, and the lending environment is in flux, so the Federal Government passes a stimulus program to get housing moving and keep many housing sector jobs alive.
• Spring/Summer 2009 – Pending & Closed Sales Increase Dramatically
  The tax credit takes effect and sales increase well beyond their normal seasonal pace and stay inflated through the normal slower holiday season.
• Oct. 2009 – Pending Sales Peak
  Pending sales peak ahead of 11/30 deadline for first credit.
  
• Nov. 2009 – First Deadline Comes & Tax Credit Extended & Expanded
  Sales take a brief dip in December but pick up their pace earlier in the year than normal ahead of the new deadline of April 30^th.
• Apr. 2010 – “In Contract” Deadline & Pending Sales Peak
  Pending sales peak in a huge manner up nearly 100% from the beginning of the year.
• May 2010 – Sales Peak; Pending Sales Bottom Out
  Closed sales peak about 30 days after in contract deadline, while pending sales drop by more than 50%.
  (* Keep in mind it normally takes 30-45 days to go from contract to closing – therefore sales will trail pending sales by 1-2 months)

• Jun. 2010 – Initial Closing Deadline, Deadline Extended, Sales Drop Slightly
  By now the closing deadline has been extended, and some of the long closing transactions are closing.
• Jul. 2010 – Pending Sales Climbing; Sales Bottom Out
  True to form sales bottom out about 2 months after pending sales peak, however hope is on the horizon as pending sales have gained more than 12% since bottoming out.

This slow-down has much more to do with the influence of the tax credit than it has to do with market fundamentals. Certainly, the housing market fundamentals could be stronger and they will be as the economy at-large returns to better health.  However, you simply can’t deny that for those Buyers sitting on the fence an $8,000 bonus was a big motivator to get moving sooner than they may otherwise planned.

The market needs to, and will, stand on its own now without the incentives.  Look for the pending sales to continue to increase through October of this year then take a holiday break followed by a New Year rally spurred on by a better economy and continued low interest rates.

Bottom-line, the housing market is strengthening and anyone who points to today’s number as a surprise, or a sign the market is doomed, is just selling FUD (Fear, Uncertainty & Doubt) and you shouldn’t be buying.