Home Sales Are Up Half a PerCent - Who's Buying?

See the full report : http://www.campbellsurveys.com/AgentSummaryReports/AgentSurveyReportSummary-June2009.pdf

The federal tax rebate of up to $8,000 for buyers who have not owned a home in the past 2 years is the Number One Factor in their decision to buy a home. The Number One Difficulty these buyers have is coming up with the Down Payment. Presto - FHA loans and many state programs allow the buyer to apply that tax rebate directly to the down payment - problem solved.

If 43% of all sold homes are bought by First-Time Buyers, you'd expect home prices to decline. Especially as these buyers are, together with investors, buying up the majority of foreclosed and underwater homes that go as short sales. These houses are priced below what an owner not acting under duress would consider selling for, especially if that owner needed to purchase a replacement home.

According to campbellsurveys.com, almost 1/3 of the all buyers are homeowners. 69% of that 1/3 are selling because of financial, relocation, estate or divorce issues. Folks, that means 31% of homeowner buyers and 10% of All Buyers - investors, first-timers & owners - are buying because they choose to do so, what we used to call life-style reasons. It's true that even during normal times divorce and death are often the reason for buying and selling, but they're usually a small factor when compared to life-style reasons.

The other 91% of buyers are buying for investment/resale purposes or to take advantage of one-time discount that could range from 1 - 10% of the home's price. Both groups are buying because of discounts to recent market prices and so their effect on the market is to lower prices still further. You may question the wisdom of buying something because of such a small portion of the total cost, but when finding the down payment is so difficult, that small discount is enough to tip the scales. The banks know this. Who can blame them for holding back on lending out good money today after so many loans have gone bad, especially to borrowers who have to scrap up a down payment from sources other than savings. For this reason appraisals have become critical for the banks and often come in so low. With all these pressures on home prices, the expectation is that they can and likely will go lower.


It was only a few years ago that everyone wanted to buy a home because everyone knew that home prices never go down. Now you have to bribe people to buy them. This is not what will lead to a stable real estate market. Seems to me that the home building/lending industry is not going to be the engine that will pull us out of this cycle. Either wages and employment go up and people in their homes will be able to afford the rising costs of home ownership or deflation will continue to erode home prices as fewer can afford the debt and costs involved. As the economist Kevin Phillips has argued, there are limits to how much a country can grow by means of credit/debt. We will have to become productive again, as in creating products and not instruments of financial manipulation, in order to pull ourselves out of this downward spiral.

(Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism was published by Viking in April. His article on untrustworthy government statistics ("Numbers Racket") appears in the May issue of Harper's.