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Home sales strong

Existing home sales have exploded to the upside in recent months. Undoubtedly, the approaching expiration of the the $8,000 tax credit for first-time buyers had something to do with this. But even if that were the whole story, doesn't it just go to show that the resolution of the housing crisis is a matter of finding the right price? We know that home prices have fallen significantly, and obviously the tax credit makes them more affordable; the combination of the two has been enough to spur the market to levels of activity not seen for over two years. This is a market that is clearing, and this is another sign that we have seen the bottom in real estate.

Take away the tax credit and the level of sales would likely decline, but in lieu of the credit, lower prices (5-10% lower) would apparently be enough to greatly stimulate sales. So if we're not at the absolute bottom we're pretty close. Plus, as this next chart shows, we also have mortgage rates that are very close to all-time lows. The way to fix the housing crisis (i.e., the glut of homes) was always to find the price that would clear the market. The takeaway from all this is that it sure looks like we've found that price.

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