Richard's Real Estate Thoughts

First Time Home Buyer Tax Incentive leading economic improvement

We were treated yesterday and today to some significantly, even surprising, positive economic news. 

• New home sales showed a jump from 395,000, to 433,000 fro m the previous month.
• "New orders for manufactured durable goods in July increased $7.8 billion or 4.9 percent to $168.4 billion. This was the third increase in the last four months and the largest percent increase since July 2007." From the US Census Bureau report today
• Consumer Confidence  surprised investors with a large increase, from  47.4 to 54.1, breaking back over the 50% level.  This is generally thought to be a good indicator of consumer spending changes.
• These follow last week's increase in  leading indicators for the third straight month. Last month the increase was .6%.  For June,  0.8% and for May 1.2%.

It is very encouraging to see these signs of recovery. The question remains how much of this turn is driven by the massive Federal incentive programs. Specifically, the recently ended Cash for Clunkers program, the First Time Home Buyer Program, and the efforts at keeping mortgage rates at historical lows through the direct purchase of Treasury and mortgage bonds. The Cash for Clunkers program was a direct cause for the upswing in car sales and likely a major contributing factor in the increase of durable goods. That program ended this past weekend. 

The First Time Home Buyers Tax Incentive is presently scheduled to end on November 30. Although Senator Bob Corker speaking yesterday at the Chattanooga Association of REALTORS indicated that there is a good deal of support for extending and for expanding the incentive.

Will the stimulus prove successful in creating the impetus for an economic turnaround? Or are these improvements only the temporary results of the Federal interventions in specific markets?