Housing's Double Dip

So how is the housing market doing now that the stimulus bill has had a year or so to work it's magic?

Uh, not so hot.

We've been reporting a lot of anecdotal information about life after the home buyer tax credit, but now we're starting to get some numbers. A new report from ZipRealty.com shows:

—The number of homes that closed in May are down more than 5% compared to April.

—Newly signed contracts in May dropped more than 10%, a sign of a real estate drought this summer.

—Internet searches on real estate sites are down 20 percent compared to this time in 2009.

The last two were pretty expected, but I'm curious why the May closings are down. These closings would have represented contracts signed in March, leading up to the end of the tax credit, or the real surge.

There's been a bit of banter out in the blogosphere about pending home sales (contracts signed) not turning into closings by June 30th, when the tax credit turns into a pumpkin. So I asked some of my housing mavens:

Guy Cecala, Inside Mortgage Finance:

"The normal fallout rate is probably around 20%. I would expect it would be higher if a lot of homebuyers rushed to act without knowing for sure whether they could qualify for a mortgage. I don't think it will be a lot in percentage terms, but it could be a fairly significant number."

Mark Hanson, Mortgage Consultant:

"Buyers were bidding on everything and sellers were accepting anything and everything before 4/30. Because so many of the pendings were short sales, a larger percentage than normal will not close but I still think Existing Sales increase decently in May, then level out in June before plunging in July."

Craig Strent, CEO Apex Home Loans:

"Keep in mind it’s not just mortgage processing that can push things back: Buyers—What if they have a house to sell first and that falls through or the buyers of the home they are selling change their mind? Settlement Co.—What if title work has issues and cannot be cleared in time. Sellers—What if they back out?"

Zillow.com also weighed in today with some "myths of the housing market."

One of them is: "The tax credits saved the housing market. While temporary tax credits succeeded in lifting buyer psychology temporarily, they essentially shifted demand forward without having a lasting impact on prices or purchase behavior. We expect some payback in the form of decreasing sales after the final closing deadline at the end of June.

The upshot is, the feds pumped a lot of air into the real estate market to create the illusion of a bounce-back and better times coming. But the reality is that with the Federal printing press in the form of a tax credit getting turned off, the air will continue to come out of the real estate market until the real prices meet the value and demand curve of the private purchasers out there.

This is where Obama's war on wealth causes havoc, as a whole lot fewer folks have the discretionary income now to be in the real estate market to begin with. In addition, Obama's hammering of the banking industry has resulted in banks hoarding cash and avoiding risk, so it is much harder to get a mortgage now anyway.

So look for a continued deflation in the real estate market for the near term.

When some folks voted for change, I don't think they anticipated this as a result.