False Worry Over Plunging New Home Sales

The statistics on home sales are out and the news is not good. The number of sales of new homes plunged to the lowest How Long Is A Land Survey Good For level ever recorded. This has set off a massive amount of worry that the sky is falling, but such worry is premature.
Housing is one of the markets that have made America strong economically. It is the staple of the middle class. Unfortunately, cheap money made available by the low borrowing rates established by Alan Greenspan in his position as head of the Federal Why Do People Overprice Their Homes Reserve turned this pillar of the middle class into a speculative industry. As with all speculative niches, that introduced big gains and losses in value. The losses, of course, led to the housing bubble burst and the resulting Great Recession.
The economy has shown technical indications it is slowly recovering from the down turn. This is primarily due to the government taking a Keynesian approach to the problem by pumping massive amounts of money into it in the form of controversial TARP and Stimulus plans. Even the government, however, can’t print money forever and now we are seeing the beginning of the end when it comes to the Stimulus funds, which brings us to the housing issue.
The government has tried to turn around the housing market through tax credits. By now you know there has been an $8,000 tax credit made available to first-time homebuyers. Predictably, the number of new home sales stabilized and all thought things were perfect with the housing market again. Now, however, the tax credit has expired and we’ve received the sales statistics for the first month following that expiration. Guess what? Sales are way down.
Is this really a surprise?
It shouldn’t be. Think the process through. If you were considering buying a home and new a big tax credit was going to expire soon, what would you do? You would rush out and buy a home! This would lead to an uptick in home sales in the month before the tax credit expired and, naturally, a drop in the number of sales the month or two after the credit expired.
The current hand wringing over the down turn in home sales is much ado about nothing. While the housing market might fall into a double dip over the summer, focusing on the statistics for the first month after the first-time homebuyer tax credit expires is simply an exercise in futility.

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