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$8,000 Tax Credit + Low Mortgage Rates = Cash For Clunkers

The Cash for Clunkers Program [1] seems to be working…the kind of clunker you can live in.

For the fifth consecutive month [2], the number of signed contracts was higher than the previous month – this figure is seasonally adjusted so the increases are not due to the spring uptick.

NAR [3] does not share it’s sample size and therefore why they present this metric as an index so I am always wary of a data set we don’t know the size of. Contract data is less prevalent than closed sales across the markets they cover so its a non-random sample by definition and therefore full disclosure is needed. But still…

The results are encouraging and supports the concept that if homes are priced correctly, they will actually sell. Buyers are out there.

I suspect a portion of the increase is a combination of the release of pent-up demand that caused people to freeze in their tracks at the end of last year, plus record low mortgage rates, lower home prices and the coming expiration of the $8k tax credit all played a part.

My concern is that the pace of foreclosures is expected to rise and there hasn’t been a “cash for clunkers” equivalent for the housing/mortgage market.

At the same time, personal income dropped [4] 1.3% from last year, the largest drop in 4 years.

A weak labor market is one reason economists say a rebound in housing will be slow to develop. The unemployment rate, which reached a 25-year high of 9.5 percent in June, may exceed 10 percent by early 2010, according to the median forecast of economists surveyed by Bloomberg last month.

Housing trends are more likely to follow employment and income trends and this is good news. However, it doesn’t mean the keys has been turned in the ignition.

Still, it’s better than a “start [5].”