Quarterly figures for many home builders have shown a surge in closings. Some builders like DR Horton Inc. reported a 60% increase in quarterly closings. This doesn’t mean that home sales are going to continue to rise dramatically in the coming months. This also doesn’t mean that the housing market has finally recovered. What it actually shows us is that many buyers rushed to sign closing contracts on homes during the last quarter before the federal tax credit expired and that many builders helped push those contracts through even if later, a buyer was unable to qualify for the mortgage.
While these figures finally put some home builders like PulteGroup Inc. in the black, they were inflated by the federal tax credit. The $8,000 federal tax credit for first-time home buyers expired on September 30th. To qualify, eligible buyers had to purchase before April 30, 2010 and close by September 30, 2010. Many buyers rushed to get these contracts signed in order to qualify for the credits deadline and many home builders pushed the contracts through hoping that a large amount of buyers would qualify.
Builders were trying to help recoup some of their losses and move as much inventory as possible. Chances are many of these builders are unlikely to see another increase next quarter. For the month of May alone, the number of closing contracts signed slipped 30% from the month before, and according to the National Association of Realtors. The month of June failed to show any improvement in the number of closing contracts signed and declined 2.6% from May to hit a record low.
In other news regarding the building sector, unemployment numbers for construction related jobs are still high. Job loss relating to construction related jobs have accounted for 27% of all private-sector job losses since 2007. These numbers do not include loan officers, real-estate agents, architects and many other housing related job fields. If you were to try to get a percentage of all job losses related to housing since 2007, the percentage would total at least a third of all jobs lost relate in some way to the housing industry.
Federal Reserve Chairman Ben Bernanke said today that the Fed will consider making another large-scale purchase of securities if the slowing economy were to deteriorate significantly and signs of deflation were to flare. In the speech he also stated that while the economic recovery remains tentative, the central bank remains ready to take extra steps to stimulate the economy if needed. He also reaffirmed his view that the economy would grow next year.
Bryan is a member of New Homes Section and a proud contributor to its blogging network. 
Many (including myself) credit the tax credit/government intervention for inflated numbers in the 2Q. Personally, I look forward to a time when the free markets can right themselves without relying on Uncle O to interfere.
It is going to be very tough for builders to duplicate these numbers going into the winter. As long as the economy drags and unemployment numbers are bad the housing industry as a whole will struggle. With interest rates this low, it shows how bad we really are doing right now.
It is good to hear that the builders who survived the economic downturn are turning a profit once more. I hope it will continue now that the tax credits have expired, school is back in session and fall is approaching.
I am trying to stay optimistic but you all right on point. I read an interview with Toll Brother’s CEO and though her company turned a profit for the first time in months, she said that they were just trying to hang on until 2011…
It’s nice to feel that a brighter future for real estate is actually there. It’s like a flicker of light on a candle with a shortened wick but still, it’s there.
Hi Bryan,
I’m was not surprised, The Tax Credit incentive from the Government did nothing more than expedite sales under April and May that would have most likely occurred anyhow sometime later in the autumn 2010 or early spring 2011 when maybe the economy slowly starting grow.