As expected, the expiration of the Homebuyer Tax Credit incentive is borrowing buyers from the future. Many of these buyers would have been in a position to purchase in the months ahead, given continued low interest rates and buyer-friendly home prices; this is reflected in recent home sales and mortgage application reports. For this to reverse five things need to happen:
1. Interest rate must remain low. - I believe interest rates will remain low for the unforeseeable future, at least until 2011.
2. Private-sector wages will need to rise, enabling the current employed to better qualify for mortgages. - Most of 2010 job growth has occurred in the government sector, ie. 230,000 Census workers.
3. New jobs must to be created in the private-sector to bring new households into the homebuying ranks. - Economists expect a decline of 115,000 jobs for June.
4. The consumer savings needs to increase thus creating the down payment and closing costs for home purchases. - the savings rate did increase in May from too 4% from 3.8% in April.
5. Consumer Spending must increase. - Latest statistics show consumer spending as flat in May at only .2% growith.
Steve Wood of Insight Economics concludes: "The growing economy, which is now creating private sector jobs with a lengthening workweek, combined with ongoing monetary and fiscal stimulus, has strengthened growth in personal income and wages and salaries. Although still soft, they are much stronger than they were just 6 months ago."
So, it appears that the US economy is modestly advancing on all five points. If it continues to improve it will still take time to create qualified homebuying households.
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