Cheap loans end, sales clock out

MORTGAGED house sales declined as loan incentives were rolled back, with sales figures returning to pre-pandemic levels in September. The number of new mortgaged house sales completed with the lower loan rates did not even reach 100,000 units in the three months that the incentives were available. In April, the pandemic surged. Economic activity in the country stalled as a wide swath of businesses in the services sector were shut down through an administrative order. Something had to be done; the economy needed some kind of stimulus. The government decided its key action would be to reduce interest rates on loans and offer a one-year grace period for repayment.

These incentives were offered on new mortgages. Banks began issuing loans for first-time purchases with a monthly 0.64% interest rate, a one-year grace period and a 15-year maturity.

First-hand mortgaged house sales jumped after dipping in April and May by a total of 6,000 units. A total of 32,000 houses were sold in June, the first month the advantageous mortgage terms were offered, followed by 39,000 houses in July.

However, it was not possible to issue this kind of loan over a long period. The interest rate began to gradually rise; the grace period ended and sales declined to 24,000 in August. In September, incentives were nowhere to be seen. House sales rose slightly above April and May levels with a total of 11,000 new homes sold.

Now, the buying spree has clocked out. Moreover, even mortgaged second-hand house transfers are following the same trend as first-hand sales.

After declining to 11,000 – 12,000 in April and May, second hand house sales rose to a record high in July at 91,000 houses but then decreased to 25,000 in September.

The interest rate – 0.64% with a one-year grace period and a 15-year maturity – was unique and those who were in a position to take advantage, took it. Part of this advantage was offset by increasing house prices but the loan was still incredibly important considering the circumstances.

So did this loan incentive allow housing stocks to deplete? Moreover, did all the sectors, including construction, recover? I am not including second-hand transfers. Loan conditions were a little different for second-hand transfers anyway. The firsthand sales through these incentive campaigns were made in June, July and August. The total sales stand at 96,000 units. If we include the 212,000 units of second-hand transfers, the total amount rises to 308,000 units. But including second-hand transfers in sales distorts the picture.

Therefore, we have used billions of TRY-denominated loans to partially dissolve the housing stock, which is now over. This will not contribute directly to the economy. A total of 96,000 people bought homes for the first time or upgraded their homes with this advantageous credit campaign and contractors turned those 96,000 houses into cash. Did this dissolving of stocks contribute directly to the economy? No. A few people earned some money, that’s about it.

Moreover, did these sales do anything to support the economy, increase production or create employment No.

Preferences shape the direction of life. If someone makes the wrong choice, they suffer from it. But what if the decision makers make the wrong choice?

Secondhand sales are not sales, they are transfers

The sale of new residences is really a sale. However, secondhand houses changing hands is not a sale. Therefore they should be defined as transfers. Assuming second-hand house transfers as sales would cause repetition since the same house can change hands more than once. New sales in automotives are defined as newlyregistered vehicles and second-hand sales are defined as transfers. Let me remind you again that statistics regarding house sales and transfers have been kept since 2013 in Turkey. So data begins as of 2013. The 41,000 units of first-hand house sales in September are recorded as the lowest of all Septembers since 2013. Such a low level in September is undoubtedly due to the large purchases in June, July and August by those who wanted to benefit from the low-interest loan opportunity. Sales remained low in September as purchases were concentrated over these three months.

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