Home sales encourage consumer spendingby Mark Zdechlik, Minnesota Public Radio
The Twin Cities real estate market is showing some signs of a rebound. Pending home sales, that is, where buyers have signed a purchase agreement, are up sharply from last year. As home sales pick up, consumer spending is expected to rise as well.
St. Paul, Minn. — Jason Bain and his family bought and began moving into the first house they've ever owned on May 26.
Like many new home owners, they have grand plans to spend a lot of time and money fixing up the Burnsville house that's now their home. They'll be painting and probably putting in some new carpet. They're definitely going to redo the kitchen.
Jason Bain said they started buying furnishings for the house even before they signed the mortgage.
"I just bought TV at Best Buy last week," Bain said.
The Bain's will be getting the $8,000 first-time home buyer tax credit. It will essentially cover their down payment. Jason Bain said that will leave them with more money to pour into upgrading their new house.
"I'm glad we're getting this started in May so then I have all summer to work on things," Bain said. "I might have to buy a riding mower just to take care of the much larger yard. We'll see how I do with the push mower for the first few weeks here."
Bain said he expects to be spending a lot of money at home improvement stores.
John Leonauskas is the marketing manager at Menards. He said first-time home buyers are valuable customers.
"As people move in, as people who live in our marketplace buy their first home, we do see a lot of those people and so the more people you can get into their first home, it definitely benefits us," Leonauskas said.
Research by the National Association of Home Builders shows why home sales are so important to the economy.
Paul Emrath, who's in charge of policy research at the NAHB, said people who buy homes spend thousands of dollars establishing their households within a year of moving in.
"This $5,000 for a new home, this $3,500 for an existing home is spending beyond what households would spend if they didn't buy homes and it's not detracting from any other spending so it's pure stimulus effect for those reasons," Emrath said.
Emrath said the home builders want the first-time tax credit extended beyond its December cut-off. They also think it would be a good idea to allow all home buyers to take advantage of tax credits.
University of St. Thomas Professor of Real Estate Tom Hamilton said increased home sales will trigger more consumer spending which, he said, is exactly what the economy needs.
"You've got to realize two-thirds plus of our gross domestic product is consumer spending," Hamilton said. "The big dog is consumer spending. Why are we in a recession? We're saving. We're not spending."
Although realtors and others close to the industry want to see the first-time home buyer tax credit extended, Hamilton said that might not even be necessary by the time it expires six months from now.
The supply of houses for sale in the Twin Cities is lower than it's been in two years. Hamilton said by the fall, the supply could be even tighter and could start boosting home prices.
Jason Bain, who with his wife just bought a house in Burnsville, is convinced the market has already bottomed out. Bain uses words like "investment" to talk about the house upgrades he's planning, and he's not holding back on investing in his new home.
"There's going to be a lot of huge projects so Home Depot and Menards are definitely going to benefit from this, so it is putting back money back into the system as well," Bain said.
Architects of the economic stimulus bill hope more Americans will do as the Bains have done -- buy their first home and invest in their dream.
- Morning Edition, 05/27/2009, 6:50 a.m.