Update2: Homebuyer Activity Continues to Pick Upby Tim Manni
Update2: More evidence on the impact the homebuyer tax credit’s pending expiration had on homebuyers was released today. New-home sales jumped 14.8% in April from the month prior, an astounding 47.8% increase from one year ago:
Economists who follow the industry say the reports reflect the impact of low mortgage rates and a $8,000 tax credit available to some first-time home buyers and a $6,500 tax credit available to some repeat homeowners who buy a new primary residence.
As is the case with the existing-home sales report (see below), analysts also expect a drop off in new-home sales over the next few months. Simply stated: the tax credit borrowed from future demand:
“We stole demand from the future and we will see a plateau [in sales] in May and June,” [David Crowe, chief economist for the National Association of Home Builders] said.
Crowe makes another interesting point: the impact of the tax credit’s expiration won’t be as profound because mortgage rates are currently at levels below 5%. Homebuyer tax credit or not, now is a great time to buy or refinance.
Update1 (published on 05/24/10): Greased by the pending expiration of the homebuyer tax credit, homebuying activity picked up once again. Existing-home sales increased 7.6% in April from the month prior.
The National Association of Realtors (NAR) said they were expecting April’s increase:
“The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” [Lawrence Yun, NAR chief economist] said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”
Don’t expect home sales to stay at this level when May and June’s numbers are released. Despite the “fallback” in sales that is expected, as of now, it appears as though lawmakers are going to leave the homebuyer tax credit alone.
Original Post (published on 05/05/2010): The busy spring homebuying season is proving to be just that. The Pending Home Sales Index — a measurement of home loans that are under contract — increased 5.3% in March from the month prior, marking its second-straight monthly increase.
A simple question: What’s behind the increase in homebuyer activity? The obvious answer: Affordable conditions and, of course, the homebuyer tax credit. A more-complicated question: can we expect these increased levels of activity to continue into the summer and fall? An ambiguous answer: We’ll have to wait and see.
The National Association of Realtors (NAR) weighs in on these questions and answers:
Lawrence Yun, NAR chief economist, said favorable affordability conditions have been working with the tax credit. “Clearly the home buyer tax credit has helped stabilize the market. In the months immediately following the expiration of the tax credit, we expect measurably lower sales,” he said. “Later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home values stabilizing.”
Yun’s comments are quite interesting and very telling looking forward. He not only forecasts that home sales will drop off after the spring season (after the homebuyer tax credit expires), but also that home sales will (hopefully) return to a “self-sustaining” system, one free of Federal incentives.
So expect reports concerning homebuying activity to continue their intensity through April, but fall off after that. Even though sales are expected to retreat, conditions should remain favorable, and a “self-sustaining” market will clear any artificially-induced demand.