The Housing Market ISN'T Rolling Over
June 25, 2010
by Aaron Task
Fears of a double-dip in housing took on renewed urgency Wednesday after the government reported May new home sales plummeted 33% to a record low.
"That new home sales would decline in May following the expiration of the home buyers [tax] credit is not at all surprising," commented Dan Greenhaus. chief economic strategist at Miller Tabak. "However, we would be lying if we said the size of the drop was not shocking."
Coupled with Tuesday's disappointing report on existing home sales - down 2.2% in May vs. expectations for a 6% rise - the new home sales report confirmed, for many, that the government-sponsored housing recovery has run its course.
Not so, says Jim Gillespie, CEO of Parsippany, NJ-based Coldwell Banker, the nation's oldest real estate company.
"No, the housing market isn't rolling over," Gillespie says.
While you'd expect a real estate executive to be bullish on housing (now and forever), Gillespie provided a rational for his optimism:
While disappointing on a month-over-month basis, May existing home sales numbers were actually "very strong," Gillespie argues, noting they were up 19% vs. a year-ago. "What took place in May is a little bit of a clog in the pipeline" because of the rush of buyers trying to meet the original June 30 deadline for the homebuyer tax credit, he says. "I think we're probably going to see very strong numbers for June." (Even noted housing bear Barry Ritholtz notes "this data series is notoriously noisy, and you are much better off using a 3 month moving average than read too much into any single month.")
Meanwhile, the steep drop in new home sales is directly related to the expiration of the first-time homebuyer tax credit, he says. But rather than robbing from future sales, as skeptics contend, Gillespie says "the tax credit did work," by bringing previously gun-shy buyers off the sidelines. Moreover, he believes Congress should support a bill to extend the deadline to Sept. 30 for homes under contract by April 30. That extension would benefit "180,000 Americans that purchased homes that are struggling to get those properties closed," he says. "I feel Congress should do that and that's the right thing."
But don't dismiss Gillespie as someone looking for the government to bail out his business. He's opposed to the government's mortgage modification program and other efforts to forestall foreclosures. "We're kicking the can down the road," he says in the accompanying clip. Let's get these foreclosures through the system -- then the real estate market is a lot more healthy."