Existing U.S. home sales climbed in May for a third month as buyers took advantage of the remaining weeks of a tax incentive, says economist Ian Shepherdson at High Frequency Economics Ltd. Judging from the recent drop in mortgage applications, sales may plunge in coming months.
As the CHART OF THE DAY shows, financing requests for home purchases plunged 42 percent from late April through early June, to levels last seen at the start of 1997. The decline reversed a 48 percent surge in the two months leading up to an April 30 contract-signing deadline to qualify for the home-buyers’ tax credit. (To see an Interactive Insight version of the story, click here.)
Existing home sales, which are tallied when transactions close, will rise 6 percent to a 6.1 million annual rate in May, economists surveyed by Bloomberg News forecast before today’s report from the National Association of Realtors. Purchases may hold up in June because buyers still had time to make the June 30 closing date to qualify for the credit. Then, beginning in July, sales will tumble, Shepherdson said.
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Just like Cash for Clunkers, the demand-side gimmickry imposed by the Obama administration has only served to displace demand to the left, delaying a wringing-out of the housing market and forestalling a true recovery where housing prices reflect true market values instead of being distorted by cheap money.
Combine this with the expiration of the Bush tax cuts at the end of the year which is pushing economic activity into 2010, we are not optimistic about a strong rebound in 2011.