Single-family housing starts have generally been rising since early this year. They hit a low of 357,000 in January and February of this year (seasonally adjusted, at an annual rate), their lowest level since current records of housing starts began in 1959. There was one stumble when starts fell in August from July, yet they still averaged almost 500,000 at an annual rate in the third quarter. But in October, single-family housing starts fell to 476,000 from September’s 511,000.
The drop-off appeared to be due to the looming expiration of the first-time home buyer tax credit, which was subsequently extended and expanded. It simply was impossible for a builder to start a home in October and deliver it by the end of November in time to qualify for the tax credit.
New home sales fell in September to 405,000 from 415,000 in August. A new home sale is recorded when a contract is signed and a deposit made. September would already have been too late to start a home and have it ready by the Nov. 30 deadline for closing on a home to qualify for the credit. However, a buyer could have purchased a completed or nearly completed house from a builder that month and still have had sufficient time to settle by that deadline.
In October, new home sales rebounded to 430,000. This was most likely due to first-time home buyers who had failed to act in time to qualify for the tax credit but were now interested in buying; non-first-time home buyers (i.e., sellers of existing homes) who had successfully sold their homes (many benefiting from first-time buyers buying their house — an expected ripple effect from the tax credit); and a few first-time home buyers who could still manage to qualify for the tax credit (some builders were advertising that they could make this happen if the buyer was willing to follow some requirements — presumably, such as buying a completed house out of the builder’s inventory and working with a bank that had agreed in advance to expedite buyers’ mortgages).
By the end of October, it looked like the home buyer tax credit was going to be extended (as it was). It’s not clear if that was sufficient to motivate some buyers to sign a contract for a new home that month.
Single-family existing home sales rose smartly to 5.33 million sales (at a seasonally adjusted, annual rate) in October from 4.86 million in September. That was the highest sales rate since the 5.75 million sales in February 2007.
Since existing home sales are based on sales closings (i.e., settlements), they represent contracts signed in previous months, incorporating the effects of the first-time home buyer tax credit at work. At the same time, distressed sales constitute roughly 30% of existing home sales. Single-family existing home sales have generally been rising since they hit their cyclical low of 4.05 million in January of this year.