Home sales fell unexpectedly in September

New home sales fell unexpectedly last month, according to government data released Wednesday, a potential reflection of the waning impact of a tax credit for first-time home buyers.

After rising for five consecutive months, sales fell 3.6 percent in September to a seasonally adjusted annual rate of 402,000 compared with August, according to Commerce Department. Analysts had expected sales to rise. Sales are down 7.8 percent compared with the same period last year.

The decline was driven by a slump in the West, where sales fell 11 percent, and a 10 percent drop in the South, which includes the Washington region. That was offset by a spike in activity in the Midwest, where sales jumped 34 percent.

The slip could be an aberration, reflecting the bumpy nature of the housing recovery amid rising unemployment, or that buyers have already made their way through the majority of the cheap new homes on the market, making future sales more difficult, economists said. But it could also reflect the waning impact of an $8,000 tax credit for first-time home buyers, which expires Nov. 30, they said.

Data on new home sales reflect a signed contract but not a completed sale. And some potential buyers may be nervous that they would not complete their deal before the tax credit expires, some economists said.

"The looming new home-buyer tax credit expiration at the end of November is likely responsible for at least some of the drop," Adam G. York, a Wells Fargo economist, said in a research note. The "lead time required to close before the deadline is significant even if the home is already completed."

Although it used to take 30 to 45 days to reach settlement on a home sale, it now often takes two months or even longer, said Bernard Markstein, a senior economist at the National Association of Home Builders. Securing a loan can be a time-consuming process, especially if the sales price does not match the appraised value, he said. "Banks are just being more cautious," Markstein said.

There were some positive indicators in the data. The number of new homes for sale fell to 251,000 by the end of September, the lowest inventory level since 1982. Once sales pick up, builders will be forced to restart construction to fill buyers' demands, economists said. New home sales have fallen from about 15 percent of the housing market traditionally to 8 percent recently, according the National Association of Home Builders.

And median home prices rose 2.45 percent to $204,800 compared with August, but were down 9 percent compared with the same period last year. But if the tax credit is not extended, demand will likely fall and put pressure on prices again, Markstein said. "It will not surprise me to see weakness returning to prices," he said.