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Last summer, many Americans stayed home. This summer, we might buy one, if the science of economics is better at predicting our emergence from this financial crisis than it was in predicting its onset.
The U.S. housing slump is at or near bottom, at least one researcher says, and other predictions of real estate stabilization made by a group of economists are bearing fruit this year.
Is this good news for real?
For starters, one factor is the incentive of the first-time homebuyer tax credit — up to $8,000 maximum — for principal homes bought between Jan. 1 and Dec. 1, 2009. This credit was part of the economic stimulus package. A first-time home buyer is defined as one who has not owned a principal residence during the three-year period prior to the purchase. There also are income limits on who qualifies.
"First-time home buyers generally are young with little savings because they have had little time in the workforce to generate much in the way of savings. This [tax credit] is a gift to them and to them alone. They know that and are taking advantage of it," Lary Cowart, an assistant professor of finance at the University of Alabama at Birmingham. "Most reports on mortgage numbers show that first-time home buyers are the predominant buyers at this time."
During February and March, 1.5 million visitors logged on to the National Association of Home Builder's consumer Web site, www.federalhousingtaxcredit.com, the trade association says. And a survey commissioned by Move, Inc. found that nearly 20 percent of those who plan to buy a home this year are motivated by the tax credit, according to the NAHB.
Housing accounts for 15 cents of every dollar spent in the United States, said NAHB Chairman Joe Robson, a home builder from Oklahoma.
Cowart says the housing slump is at or near its bottom in many parts of the country.
Bottoms are tricky to identify in advance, he points out. And this is exactly what makes economic forecasting difficult. When you jump into a pool, you know you are at the bottom when you touch it. However, on a graph, you learn of the bottom only after passing it. "I believe that most of the middle of the country is at or near a bottom," he said, adding that exceptions are a long way off, including most of Florida, the Alabama Gulf Coast, Detroit, Phoenix and Las Vegas.
Cowart calls the first-time home buyer tax credit "the big story this summer in real estate." Homes at lower price points are selling well, while homes at higher price points won't sell well until the winter, he said.
At the same time, predictions from a survey of 840 members of the American Economic Association seem to be coming true. Among the expectations: The housing market should stabilize in 2009; price declines should end; sales should rebound slowly; and mortgage rates would stay level in the near- and long-term.
Nearly 75 percent of those surveyed expect the market to bottom out no later than the end of this year. Nearly half expect the bottom to be reached by the end of the second quarter of 2009.
"When the research was conducted, the housing market was already in crisis, with subprime mortgages and declining home prices, but there were many events that the economists surveyed could not have foreseen, such as the global financial crisis, bank failures and the outcome of the presidential election," said Laura Indergard, associate director of the Keller Center at Baylor University's Hankamer School of Business.
"Despite that, we are now hearing reports that single-family segment of the housing market is exhibiting signs of stabilizing and here we are in the second quarter of 2009," Indergard said. "The predictions of the majority of the economists would appear to be on target and I think that should be reassuring to the potential American homebuyer."