A double dip is emerging in the US residential real estate market with two houses waiting to be sold for every one currently on the market, it is claimed.
There has been much talk of a double dip entering the market but according to a report from Toronto based Capital Economics, an independent macroeconomic research firm, it is now materializing.
In the report, Double Dip Begins, author Paul Dales argues that the rush to take advantage of the tax credit pushed new home sales up by 29% in the two months to the end ofApril. But in May, new sales plunged by 33% month on month to a new record low. The pending home sales index also fell sharply, by 30% in June.
‘The expiration of the homebuyer tax credit at the end of April has triggered a double dip in the housing market, with new home sales falling particularly sharply in May. The only reason why existing home sales did not fall significantly is because they are measured at the contract closing, rather than signing stage,’ he said.
New legislation signed into law at the start of July dictates that as long as a contract was signed before the end of April, homebuyers can still claim the tax credit if it is closed before the end of September. Existing sales will therefore fall more gradually.
Nonetheless, the number of homes in the foreclosure pipeline increased in the first quarter. The foreclosure inventory rate rose from 4.5% to 4.6% and the delinquency rate, which measures the proportion of all borrowers that have missed at least one mortgage payment, increased from 9.5% to 10.1%.
‘That means the potential supply, or shadow inventory, rose from 7.6 million homes to 7.8 million. That dwarfs the 3.9 million homes already on the market,’ he added.