Home Sales Stabilize as Tax-Credit Fever Ebbs

Home pricesPending sales of existing homes have stabilized, with a modest 1 percent increase in a key housing market index for December that remains above year-ago levels, according to the National Association of Realtors’ forward-looking measure of activity.
Based on contracts signed in December, the pending home sales index rose from 95.6 in November to 96.6. The association’s index is a leading indicator of housing activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes.
The index remains 10.9 percent above December 2008’s housing crisis peak level of 87.1.
In November, the monthly index had fallen by 16.4 percent from surging activity in preceding months, a market swing fueled by interest in home buyer tax credits. Then a sharp drop was reported as the credit’s initial deadline loomed at the end of November.
The NAR reports that there is some reason for optimism since December’s number is the “fifth-highest tally in two years.”
“There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” said Lawrence Yun, NAR chief economist. “These swings are masking the underlying trend, which is a broad improvement over year-ago levels.”
In November, the first-time homebuyer tax credit extension was extended until April 30, 2010. Its original deadline was Nov. 30, 2009.
The extension was part of a $24 billion economic stimulus bill that provides an $8,000 tax credit for homebuyers who are purchasing their first home. The program was also expanded to offer a credit of $6,500 to homeowners who have lived in their current home for at least five years and are seeking to relocate.
Buyers who have a contract in place to purchase a primary residence by April 30, 2010 have until June 30, 2010 to finalize the transaction to qualify for a tax credit.
Yun projects the tax credits will encourage 2.4 million households to take the credit in 2010.
“While new-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010,” Yun said.
Last year, there were 5.16 million existing-home sales.

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