Several other factors contributed to the sales gains in recent months.  Antidotal reports suggest a pickup in condo sales. Some developers have held auctions to cut their inventory and raise cash.  Others have negotiated deeply discounted sales of large blocks of unsold units to investors whom believe that they are paying low enough prices to realize large capital gains from sales in 2010. In both cases, most of the added condo sales are ownership changes but still leave a vacant unit available for sale and do not generate a need to start a new unit to replace the sold unit. These ownership changes recognize losses and establish a new lower base price for new owner.  This is a necessary move toward a more normal market environment.

The October spike in sales dropped the months’ supply of unsold inventory to seven months which is still two months higher than the top end of the normal range. Expect the months’ supply statistic to return to near eight in the next few months. This is at least a million homes above the normal market level, down sharply from over two million homes earlier in the year. This will restrain the housing recovery for several more years. And it will force home prices lower in the local markets with the largest inventory surplus.

Single family sales have also received a recent boost from other federal housing recovery measures.  The HAMP program has enrolled over 600,000 financially troubled homeowners in a trial mortgage adjustment plan.  Homeowners who can demonstrate a period of on time mortgage payments get their monthly payment reduced to 31% of income by reducing the interest rate to as low a 2%, the loan term to as long as 40 years or a reduction in the principal owed. This program removes homes from the foreclosure process for the trial period.  But early results suggest that most of the aided homeowners will fail the trial because of unemployment or the end of unemployment insurance benefits and will fall in the foreclosure process.  This will be a major source of additions to homes available for sale next year.

In spite of these negative headwinds, the housing market will progressively recover in 2010-11 but will remain at a recession level through the period.

 

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