Pending Home Sales Fall on the Month, but the Midwest Is Hit the Hardest

The numbers: The index of pending home sales dropped 0.3% in December, marking the fourth consecutive month of declines, the National Association of Realtors said Friday. The index measures real-estate transactions in which a contract is signed, but the sale had not yet closed.

Compared to 2019, pending sales were still up 21%, a sign of how strong the market is right now despite the recent weakness.

What happened: Pending sales didn’t fall across all regions, as was the case in November.

In fact, the Midwest was the only region to experience a decline, with a 3.6% drop. Pending sales were flat in the West and rose by 3.1% in the Northeast and 0.1% in the South.

The big picture: In the months to come, the story will be whether the number of listings of homes for sale will grow to meet demand.

“Pending home-sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale,” said Lawrence Yun, the National Association of Realtors’ chief economist. “There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.”

It’s not clear precisely what has held sellers back from putting their homes on the market. But the problem could be a self-perpetuating one: Some buyers might be seeing the dearth of homes for sale and be reluctant to list their own for fear of not finding somewhere to move to.

What they’re saying: “Demand for existing homes remains strong but supply is likely restraining sales figures,” said Ruben Gonzalez, chief economist at Keller Williams. “We expect to see continued price acceleration in the near term as a result of record-low inventory levels that have persisted for several months now.”

Market reaction: The Dow Jones Industrial Average and S&P 500 both fell in Friday morning trades.

Source: realtor.com

Potential impacts of Biden’s $15,000 tax credit

The housing industry is keeping a close eye on the Biden administration’s proposal of a first-time homebuyer tax credit of $15,000. If passed, the funds — which would help cover a down payment — could be accessed immediately by the buyer at the closing table.

$1.9 trillion American Rescue Plan — is more of a possibility now that both Senate races in Georgia went to Democrats.

Ralph DiBugnara, president of Home Qualified and senior vice president at Cardinal Financial, sees an obvious positive impact of the tax credit but is still wary of parts of the bill, which includes an increased rate on long term capital gains.

“The real estate market is so hot that hurting investors now may not have a big effect, but long term it could cause major issues,” DiBugnara said. “Real estate Investors tend to buy more real estate in even in bad markets as a long-term strategy. If it becomes more expensive for them to do so, because of taxes, I believe some will shift strategies long term so when market cools there will be a lot less of them to support home buying.”

Lawrence Yun, chief economist at the National Association of Realtors, thinks Biden’s tax credit will need to get support from around 60 senators — a majority needed to pass it into law — if Democrats choose not to use budget reconciliation. And, the possibility certainly exists that Republicans will ask for a smaller credit number.


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“Having a few Republican Senators on board will help change the public perception of working across the aisle,” Yun said. “That means getting what the Biden administration wants along with items favorable for Republicans, such as expanding high speed internet access to rural areas and a tax break for small businesses.”

For builders, Yun said preserving the 1031 Exchange to incentivize land sales is important for the future of the housing market. An extra $15,000, he said, certainly won’t help the already low inventory of homes available.

“Only with added supply will the homebuyer tax credit be effective in boosting homeownership and enlarging the middle class,” Yun said. “Without supply, home prices jump much higher with no meaningful gain to new homeownership.”

Ruben Gonzalez, Keller Williams chief economist, said it’s hard to comment on anything definitive at the moment but thinks Biden’s tax credit will garner bipartisan support.

“The challenge with the credit right now is that demand is already really strong with mortgage rates so low, and most evidence is showing that high earners have increased savings during the pandemic,” Gonzalez said. “The first-time home buyer tax credit seems like a good candidate for bipartisan support, but right now it’s still unclear if we are genuinely going to see bipartisan efforts in Congress.”

But past bipartisan support for similar tax bills seems to point things in a positive direction, DiBugnara said, of passing.

“I do believe, with the Democratic-led Senate, most of what is President Biden’s tax plan will come to fruition,” he said. “The [$15,000] credit seems to be one of the easier proposals of the tax plan to get passed, because it will stimulate the already hot real estate market and align with a low interest rate market. The majority of both parties have been in agreement with that.”

Source: housingwire.com