The sharp drop in November’s home prices reported today explains yesterday’s data on the surge in home purchases in December. There are buyers who have been waiting for “the bottom” and for interest rates to fall, and the conditions have arrived. November’s prices brought out December’s buyers.
But will those conditions endure and the buying continue? The key to a recovery in housing is confidence on the part of the buyers that others are buying as well, which is why the House GOP’s proposal of a tax credit for the purchase of a new home on which a real down payment has been made is the best idea among many that would help change the House pork bill into a serious stimulus package. The House GOP proposed a $7,500 tax credit on the purchase of a new home, but as the Chairman of the National Association of Home Builders noted on my program last week, an effective incentive to enter the market should be priced by region.
Whatever the details, the House bill as drafted by the Democrats does nothing to support the housing market much less ignite the sort of recovery that would lead a crucial sector out of the recession. The House GOP should continue to makes it pitch, and their Senate counterparts should insist on including and expanding this proposal in any final bill. When housing recovers, every American home-owner benefits, as does the broader economy.