Archive for July 19th, 2010

Void In Housing Demand Could Leave Home Prices Stagnant

Monday, July 19th, 2010

On the heels of a 30% plunge in pending home sales in May — the first month that house hunters didn’t have the first-time homebuyer tax credit to entice them to sign contracts — analysts are anticipating a week of plummeting housing starts and existing home sales.

In a note coming out Monday, Toronto-based macroeconomic research firm Capital Economics will project weak June housing starts, with little demand for housing and existing home sales. The firm is expecting new home sale numbers to “plummet.”

Legislation passed in July extended the homebuyer tax closing deadline through September, meaning some deals could fall into July or August.

The PMI Mortgage Insurance Co., the primary operating subsidiary of The PMI Group (PMI: 3.09 -11.21%), said in its July housing and mortgage market analysis this week (download here) that housing activity may not rebound for months.

“The expiration of the second tax credit has hit housing activity hard, after having drawn sales forward into March and April,” the firm said. “Moreover, all of the near-term leading indicators of housing activity suggest no pickup in coming months (and perhaps even additional declines). Directionally, however, this should not have been a surprise to anyone — although the magnitude of the falloff is larger than we expected.”

PMI lowered its projection of home sales in 2010 in response to the larger-than-expected decline in May — and prospectively in June and perhaps even July. Now expect existing home sales to grow by 2.9% to 5.31m units and new sales by 9.4% to 409,000 units for the whole of 2010. Sales should increase at a faster pace in 2011, with existing sales growing 8.6% to 5.76m units and new sales expanding 48.7% to 608,000 units.

PMI said home prices should remain static for the balance of 2010, as a falloff in sales erases recent gains, before climbing modestly by 2% in 2011.

Fitch Ratings also noted recent new and existing home sales data suggest the first-time homebuyer tax credit pulled sales forward into March and April.

“This has left a vacuum of demand (especially from entry-level buyers) in its absence. A rather sluggish economy also continues to restrain interest in housing,” said Fitch managing director and lead US homebuilding analyst Bob Curran, in a statement.

Home affordability and low mortgage rates could drive sales in the fall, Curran said, although job creation and improving consumer confidence will also play a key role in restoring housing demand.