You may have heard that the October 2009 existing home sales numbers shot up, once again, this time by a staggering 10.1%.  That’s a big number.

You can read more about the details at this article by the National Association of Realtors.  The big take away for me in this article is that even the chief economist for the NAR, Lawrence Yun, admits that the increase was driven by the $8,000 first time home buyer tax credit.  If you remember, at the time, the tax credit was due to expire on November 30th. All the first time home buyers that could possibly qualify for a mortgage were scurrying around looking for a home to buy.

Many people, who are paid to think the deep thoughts about this, said that a lot of this “pent up demand” was encouraged or “stimulated”  by the tax credit and that these folks would have bought a home anyway.  Ya think?

Few Homes Does Not Equal Higher Prices…Yet

The article also talked about how home inventories — the number of homes available for sale — continue to decrease.  That’s a good thing.  It means that as less homes are available for buyers to choose from prices may stabilize and keep from falling even more.  However, a great many of the home sales are in the bank owned, foreclosure category.  In other words, it is the bargain basement, low priced homes that are getting snatched up.

The purchase of these low priced bargains create a lower priced threshold for comparable sales in the neighborhood. So, even if you are not in any kind of mortgage distress, the fact that three of your neighbors went into foreclosure affect the price of your home.  It’s sad but true.  No matter how much you try to rationalize how great your home is and how much equity you have, the surrounding neighborhood home sales affects the selling price of your home.

The Metro DC Market

One of the interesting things from the NAR article about existing home sales was this quote from 2010 NAR President, Vickie Cox Golder:

“In parts of the country, especially in Southwestern states but also in Florida and suburban Washington, D.C. (emphasis mine), we’ve been getting many reports of multiple bids in the lower price ranges with foreclosed properties getting absorbed quickly,” she said.

It’s true.  There have been multiple offers on the foreclosed homes in the area.  This is especially true for homes that are in some disrepair but not totally trashed and gutted.  However, suburban Washington, D.C. is a big geographic area and this buying frenzy is localized even within the area.

Tax Credit Extended

More to the point, the tax credit has been extended and expanded.  It now covers the first time home buyer, like before, and home owners that currently own homes. (Click Here for a great chart of the tax credit requirements and restrictions)

Since no one needs to be under contract until April 30th, potential home buyers can sit back and relax until the Spring.  In the words of Lawrence Yun, the NAR chief economist:

“Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” he said. “With such a sale spike, a measurable decline should be anticipated in December and early next year (emphasis mine) before another surge in spring and early summer.”

So it’s not time to pull out the champagne quite yet.  Sellers of mid-range to upper-tier homes are still struggling to get their pricing right in order to sell their homes.  The stimulus may be helping but, like the Cash for Clunkers program for cars, this Cash for Cul-de-Sacs may just be a temporary response to Government stimulus.

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