The real estate market seems to be on the road to recovery, albeit at a slow pace. Despite a December slump, sales of previously occupied homes rose in 2009 for the first time in four years. While signs of improvement are clear, the market has not been able to match pre-recession numbers. Prices plunged more than 12 percent in 2009 — to a median of $173,500 – which showed the housing market remains too weak to help fuel a sustained economic recovery.
The poor December results reported Monday by the National Association of Realtors occurred after Congress extended the first time homebuyers tax credit, easing pressure to act quickly. The credit, up to $8,000 for first-time homeowners, had been due to expire Nov. 30. Now, Congress extended and expanded the deadline with a new $6,500 credit for existing homeowners who move.
For all of 2009, sales totaled nearly 5.2 million, up about 5 percent from 2008. Many analysts attribute the small rise in sales to increased government spending, such as the Federal Reserve’s purchase of mortgage securities to keep home loan rates low and the first time homebuyer tax credit. However, the programs end in March and April, respectively, and some question whether the housing market will be stable without the support of government spending.
Upon the completion of the mortgage-buying program, analysts say rates could rise as high as 6 percent for 30-year loans. Similarly, first-time buyers were the main driver of the housing market in 2009, but their role is shrinking. Accounting for 43 percent of purchases in December, the numbers are down from about half in November.
“You just can’t go from 100 miles an hour to a dead stop and expect it to happen without a big jump in mortgage rates,” said Greg McBride, senior financial analyst at Bankrate.com.
The median sales price for December was $178,300, up 1.5 percent from a year earlier and the first yearly gain since August 2007. But some of that increase might be due to a drop-off in purchases from first-time buyers who tend to buy less expensive homes.
The Obama administration’s program to aid homeowners has been largely disappointing, with only 7 percent of those who signed up actually completing the program as of December.
Last week, Richard Neiman, New York’s top banking regulator, warned that 450,000 homeowners risk falling out of the program by the end of the month because they haven’t returned the necessary paperwork. The program, he said, is “simply being drowned by a fierce flood of foreclosures.”