Here are the reasons why.
The Associated Press released a report stating that home sales dipped to a 12-year low in January by 5.3 percent or 250,000 homes MoM. We agree with the analysis that buyers are “sitting back” in light of the plans of the government in overhauling the real estate market. In fact, the details of the rescue plan need to be explained and evaluated by homeowners and buyers before any action is made.
Among the reasons that we could cite are the following:
First, buyers would gamble on sure bets in the market this time. Remember how they introduced a first-time buyer tax credit last year? Some were disappointed with their purchases after a new tax credit program was introduced last week. In the former, only $7,500 was given out to each recipient and they would have to repay the government the full amount in due time. The new plan however, gives away $8,000 to qualified buyers with NO repayment as long as they purchase the house until December 1 and stay in their homes for the next three years. So if a buyer would decide on paying for a house now, he’d be having second thoughts on doing so. Who knows, by the end of the year, we’d be hearing another program from the Treasury.
Second, mortgage-backed bonds are trading with fluctuating expectations in the market today. Since mortgage rates are dependent on MBS, they are indirectly related to the factors that affect traders’ expectations then that include exchange rates, supplier and consumer confidence indices and the general business climate. And in case you’ve forgotten, we’re in recession so this makes hedging more difficult. Here’s a sample from AP:
Throw in a distressing home sales report, an indebted media empire selling its property and your kid’s favorite jelly. Yes, a buyer will be in haze.