Home Sales: Where's the Boost from Tax Credits?

MortgagesThe tenuous outlook on the housing market didn’t get any better today with the announcement of new home sales for December unexpectedly dropping, indicating that an extended tax credit program has not yet had the impact the industry anticipated.
New home sales declined 7.6 percent for an annual pace of 342,000, the lowest since March, said the Commerce Department today. For all of 2009, sales fell 23 percent to 374,000, the lowest level since records were initiated in 1963.
A government tax credit of $8,000 for first-time buyers was originally due to expire on Nov. 30, but was extended to cover closings through June 30, and expanded to include some current owners.
But the change in the law possibly wasn’t in time to boost December sales. Economists expect the tax credit will help revive home sales throughout the first half of 2010. But there is much uncertainty as to what happens after June 30.
And it is particularly unclear what will happen after the Federal Reserve’s winding down of its purchases of mortgage-backed securities from Freddie Mac and Fannie Mae in April. The Fed’s move could eventually push interest rates upward later this year.
The median sales price of new homes sold in December was $221,300; the average sales price was $290,600. The seasonally adjusted estimate of new houses for sale at the end of December was 231,000. This represents a supply of 8.1 months at the current sales rate.
Sales of existing homes fell sharply by 17 percent in December. The decline was the biggest since records were started in 1968, the National Association of Realtors said Monday. For all of 2009, existing home sales rose 4.9 percent to 5.16 million, the first increase in four years.
New home sales represent less than 10 percent of the housing market but are a leading indicator because the numbers are based on contract signings. Sales of existing homes are taken from contracts signed much earlier, sometimes weeks or months.
Add to the housing market woes is the relentless foreclosure crisis, hampered in part by the government’s slow-moving and much-criticized foreclosure relief program, Home Affordable Modification Program, or HAMP.
Foreclosure notices set a record in 2009 with a total of 2,824,674 U.S. properties affected, up 21 percent from 2008 – and up 120 percent from 2007, said RealtyTrac, the online marketer of foreclosures, in its annual report.

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