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Jobs Not Incentives Will Solve U.S. Housing Downturn: TD Economist

The U.S. government’s attempts to shore up the country’s real estate market after the financial crisis with first-time homebuyer tax credits and other incentives really didn’t do anything to put the American housing market on a more sustainable path, according to a TD economist.

Instead, government inducements just borrowed demand from the future, allowing the housing market to gain some momentum before dropping right back down, TD Senior Economist James Marple said.

“It resulted in a moving around of sales, but if you’re measuring its success in terms of creating [a] cycle that would bring new buyers in and set the market on a self-sustained recovery, it certainly failed,” he told CRE Online.    

Going forward, the government must improve its fiscal situation and improve job creation if the housing market is ever going to get back to a sustainable level, Marple said.

“There’s no obvious silver bullet for the government here, but again I think that solving some of their fiscal problems and removing uncertainty surrounding foreclosures could go a long way to increasing confidence in the recovery.”

The existing home market in the U.S. has seen consistent declines over the last five years, but last month’s numbers show some positive momentum, though most of it is largely the result of distressed home sales.

Existing home sales rose by 3.7% in March to 5.1 million nationwide, up from 4.92 million in February, according to the National Association of Realtors (NAR). The figures beat many analysts’ predictions for the month by as much as 2.5%.

The majority of the gains came from detached homes sales, which were up 4%.  Condo sales rose just 1.6%.

Still, much of the activity in the U.S. is coming from the distressed sales, which accounted for 40% of the total existing sales in March, up from 39% in February and 35% in March 2010.

While the median existing home price rose by 2% in March to $159,600 from $156,100, it’s still 5.9% lower than it was a year ago.

According to TD Economics, homebuyer tax credits offered in the U.S. have done little to stimulate demand, and have actually, in some cases, caused more volatility.

Most analysts agree that job creation will be the only measure to help the U.S. housing market recover.

By Shane Buckingham
CRE Senior Staff Write