June 11, 2010
The Washington Post is famous for relying on David Lereah, the chief economist for the National Association of Realtors (NAR) and the author of Why the Housing Boom Will Not Bust and How You can Profit from It, as its main source for information on the housing market during the bubble. It apparently still has not learned that the NAR is not a neutral source of information on the housing market.
It printed without question an assertion from Lawrence Yun, Mr. Lereah’s successor, that as many 180,000 people who qualify for the first-time homebuyers credit (which also applied to some existing owners), may have signed a contract by April 30th (meeting one deadline), but be unable to close by June 30th, a second requirement for the credit.
Let’s look at this one. The number of existing homes sold in April was about 470,000. Since it generally takes 6-8 weeks between contracts and closings, this implies there were about 470,000 homes contracted in February. The pending sales index rose by about 13.5 percent between February and April, which means that there were about 540,000 existing homes placed under contract in April. The Commerce Department reports that there were 48,000 new homes put under contract April for a total of 590,000 homes.
Many of these homes would not qualify for the credit either because the buyer previously owned a home (but not long enough to qualify for the move-up credit) or due to the income caps. If we assume that 75 percent of the homes contracted in April qualify for the credit, this would mean that roughly 440,000 people signed contracts in April who qualify for the credit.
Mr. Yun’s claim that 180,000 people who signed contracts before the deadline may not be able to close by June 30th would mean that more than 40 percent of these buyers are in this situation. While there was somewhat of a surge in buying in April, it did not approach the levels reached at the peak of the bubble in 2005-2006. It is therefore difficult to believe that it could have created too much of a backlog of paperwork. Furthermore, the mortgage applications index indicates that sales plummeted after the end of the month, so there would be few new sales for mortgage processors to deal with.
In short, there is little reason to believe that the vast majority of sales qualifying for the credit could not be completed within two months of the contract date. (Remember also, sales were spread over the month. Someone who signed on April 15th has more almost 11 weeks to meet the deadline.) Mr. Yun’s estimate likely exaggerates the number of people in this situation by an order of magnitude. The Post should learn that people who work for trade associations are not good sources for unbiased information.
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