Tax Credits & Surging Home Sales: What Happens After April 30?

MortgagesThe major housing indicators agree that the homebuyer tax credits – extended and expanded late last year – finally kicked in last month as new home sales soared 27 percent for March,  a month over month rate not seen since 1963.
The Commerce Department reported yesterday that new-home sales jumped to a seasonally adjusted annual rate of 411,000 units, reversing February’s record low and blowing past expectations of most housing industry analysts.
The March sales figures were led by a 43.5 percent gain in the South; a 35.7 percent jump in the Northeast; an increase of 5.7 percent in the West and 4.3 percent in the Midwest.
On Thursday, National Association of Realtors reported existing home sales of 5.35 million units in March, up 6.8 percent from February – and a 16.1 percent increase compared to a year ago.
Another positive sign – at least in the prospects of new home construction – is the nationwide inventory of new homes on the market, which dropped a negligible 0.8 percent in March, to 227,000 units. But builders had maintained small inventories.
With the increased sales pace, the month’s supply of new homes for sale dropped from 8.6 in February to 6.7 in March.
“Undoubtedly, the tax credit is working,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “Builders are seeing a growing optimism among consumers.”
But industry analysts also see a dip in activity following the expiration of homebuyer tax credits, which expire in six days. An eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. First-time and repeat homebuyers are eligible for as much $8,000 and $6,500, respectively.
And even the Commerce Department reminds the public with every industry update that it takes “four months to establish a trend in new houses sold.”
Fannie Mae economists foresee a plateau in activity by June. Most housing industry analysts see the job market and interest rates as the biggest motivating factors in maintaining any kind of momentum in home sales throughout the rest of the summer.
“The increased sales are very welcome news and sales will continue to improve, although we expect them to plateau in late spring and early summer when the credit expires,” said NAHB Chief Economist David Crowe. “Following that, the housing momentum will be carried forward by low interest rates, pent up household formations, excellent affordability conditions and a budding employment growth.”
Fannie Mae economists Doug Duncan and Orawin T. Velz said in their latest housing market analysis released this week that much is riding on the unemployment picture.
“With the tax credit pulling forward some sales into the first half of this year, we expect sales to pull back in the third quarter,” the Fannie Mae report said. “If the labor market improves substantially, as we anticipate in the fourth quarter, home sales should rebound and begin a self-sustaining recovery without the help of a tax subsidy.”
But Fannie Mae reiterates that the current surge is coming off sluggish or weak home sales figures for January and February, resulting in residential investment having fallen in the first quarter after gaining in the third and fourth quarters of last year.
“We expect (residential investment) to increase modestly in the current quarter and going forward,” Duncan and Velz said. “For all of 2010, we expect residential investment to add just 0.2 percentage points to Gross Domestic Product — still an improvement after subtracting from GDP during the past four years.”

2 thoughts on “Tax Credits & Surging Home Sales: What Happens After April 30?

  • Pingback:Dubuque Real Estate by the Numbers – April 24, 2010

  • April 25, 2010 at 3:02 am
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    (1) If you grow up much more than last month and not seen for the last 50 years, you, absolutely, are sick.
    (2) Our policy makes it sick, not healthy.
    (3) People grab houses these days in my area. So you know what will happen after April 30.
    (4) Car makers did the same thing to raise car sales much higher suddenly by cutting price, giving more rebates and zero interest rate. what was after? GM and Chrysler bankruptted.

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