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Home sales jump in August: why it's not enough to revive housing market

Even as home sales increased in August, median prices fell. Experts point to a 'shadow inventory' of homes that will eventually face foreclosure and say prices won't keep up with inflation for years.

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In his recent set of job-creation proposals, President Obama said his administration is pursuing new steps to help at-risk borrowers refinance to avoid foreclosure. So far, efforts on that front have had only modest success.

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Some housing experts say the best approach at this point is a hands-off one, whether the result is a slow recovery or a further decline in home prices.

Rep. Gary Ackerman (D) of New York recently announced a proposal to focus on a different kind of intervention: seeking to spur demand among home buyers.

Named after the 1862 Homestead Act, this plan would offer down-payment assistance to the first two million creditworthy borrowers, in the form of a matching subsidy up to $20,000.

In addition to that move, which is aimed at single-family owners, the bill would also encourage purchases of homes for rent, by offering a 10-year tax exemption on rental income for a million buyers.

Economist Ed Yardeni, who helped formulate this plan, argues that it would be a relatively efficient way to speed buyers, sellers, and builders on the path back toward a more normal housing market.

Of course this is just one of many ideas on how to address the housing issue. But Mr. Yardeni, who heads a research firm based in Great Neck, N.Y., says it has the virtue of simplicity and a comparatively low cost (he estimates $40 billion).

And compared with other job-creation plans, this idea targets directly what Yardeni says is the economy's "biggest problem."

Patrick Newport, a housing economist at IHS Global Insight, says the boost in home sales during August came mostly from investor buyers, although home purchases also rose among people planning to live in the homes.

Mr. Newport, in a written analysis, also said that the level of sales reported by the National Association of Realtors (NAR) will be revised downward in coming months. That's because the group is reviewing its data-tracking process, after other housing-industry companies suggested that the NAR sales numbers have been too high by as much as 15 or 20 percent.

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