Real Estate Markets Mixed

Real estate markets around the world are showing signs of stability which should boost broader economic activity, Bank of Nova Scotia said Thursday. The U.S. real estate market is stabalizing with the volume of sales agreements for homes rising for the seventh straight month in August. A separate U.S. government report Thursday showed construction spending rose in August as housing leaped at the fastest pace since 1993.

Is this rally sustainable?  Many Americans are scrambling to buy a house by November 30, 2009. That’s when an $8,000 tax credit for first-time home buyers expires.  The popular credit was introduced earlier this year as part of the U.S. Government’s economic stimulus program. It has already benefited 1.4 million families, according to the IRS, and given a much-needed boost to the U.S. housing sector in the past few months.

The $8,000 tax credit in the U.S., available to buyers that have not owned a home in three years, reduces a taxpayer’s bill on a dollar for dollar basis. The full $8,000 credit will even be paid to first-time home buyers if they owe no tax or the credit is more than the tax owed. It is a cash-back deal designed to encourage not only the purchase of a home, but the appliances and consumer goods that go in it.
Historically low borrowing costs, increased affordability and home-buyer tax incentives in a number of countries have underpinned this “modest revival” in housing demand and real home prices increased in a number of major developed economies in the second quarter of 2009, including Canada, Australia and the United States.  New home building in Canada is improving, with the largest improvement in Canada's four western-most provinces.
Canada's first-time home buyers’ tax credit is in the amount of $5,000, available to buyers that have not owned a home in four years. But the credit is calculated by multiplying the lowest personal income tax rate for the year (15 per cent in 2009) by $5,000. For 2009, that amounts to a credit of $750 which is not much of an incentive compared to the U.S. credit.

Prices were still falling in many other markets, including the U.K., France and Spain, but generally at a slowing rate.

The rebound in housing activity will be constrained because unemployment rates remain high and are expected to be slow to decline. And a more cautious lending environment is expected to persist as financial institutions worldwide recapitalize their balance sheets.



Source:
Globe and Mail Update and The Associated Press