Plunge in existing home sales

The month of December saw a huge month-to-month decline of 16.7% in the sales of existing homes.

Analysis: While the magnitude of this decline surprised many economists, most of them had predicted a decline. Because many people had expected the U.S. government first time home-buyer tax credit to expire at the end of November, there was a huge increase in existing home sales in November. So the month over month decline number is skewed by this realization. Incidentally, Congress extended the first-time home buyer tax credit until spring of this year.

Many analysts are now questioning the health of the real estate industry because of this one statistic. The thinking is that sans U.S. government intervention the real estate industry cannot sustain itself. Let me throw in a little conjecture. My own opinion is that the decline may simply be reflective of home buyers becoming more sophisticated. If the home buyers are smart enough to race to complete transactions by the end of November, why wouldn’t they be smart enough to wait until this next round of tax-incentives expires? If I were in this situation and I know that housing prices have been falling then my incentive as a buyer is to:

a) Keep looking until I find the perfect house – what’s the rush?

b) Make my bid toward the end of the expiring tax credit when a prospective seller is desperate to unload their property.

Now, I don’t have evidence of this behavior. However, the above scenario is certainly being contemplated by some prospective home buyers. The real question is how many are undertaking this calculus? Right now I need more evidence of a problem in the housing industry to really be concerned about one month’s worth of existing home sales.

Importance grade: 4; because I am uncertain as to whether or not this data is suggestive of anything other than home buyers becoming more sophisticated, I have to rate the importance of this stat fairly low.

Jason