National Real Estate Market Shows Two Faces

While everyone was rushing to the airport or to the mall last week, the real estate market delivered news that appeared to be signs of a split personality.

On Tuesday, there were smiles everywhere when the National Association of Realtors reported sales of existing homes rose 7.4 percent in November from their October mark, and are 44.1 percent higher than they were in November 2008. In fact, current sales haven’t been this high since February, 2007.

On Wednesday, frowns appeared when the Commerce Department reported sales of newly-built homes dropped 11.3 percent; reaching a seven month low.

So what’s the truth about the real estate market?

Here’s a hint. Data for exiting home sales is reported for when the transaction closed. In other words, that leap in November transactions may well reflect the expiration of the original first time home buyer tax credit, which expired at the end of the month.

New home sales, on the other hand, are calculated based on when the contracts were signed; meaning after November 1.

In other words, we may see a similar dip in existing home sales when next month’s data is reported. However, it’s important to note the volume of existing home sales wasn’t the only good news in NAR’s report.

What’s interesting to note is that the total supply of unsold inventory on the national real estate market is down 15.5 percent from one year ago. If no new homes came on the market, we’d be out of houses to sell in 6.5 months.

The last time there were fewer houses to sell was in April, 2006; generally considered the biggest of the boom years.

The basic economic principle of supply and demand dictates that as supply diminishes, prices go up. We’ll see if that holds true as we head toward the April 30th deadline for the first time and “move up” buyer tax credits.