By Renae Merle
Washington Post Staff Writer
Tuesday, January 26, 2010; A12
Sales of previously owned homes took their biggest tumble in at least 40 years last month as the impact of a buying spree spurred by a tax credit for first-time buyers waned, according to industry data released Monday.
Those who rushed to meet the original November deadline to take advantage of an $8,000 tax credit for first-time home buyers caused a surge in sales earlier in 2009, but left the market wobbly by the end of the year. First-time buyers, who made up more than 50 percent of sales earlier last year, represented just 43 percent of the market in December. The shift also resulted in fewer sales of lower-cost homes, which first-time buyers typically seek.
After three months of increases, sales of existing homes, including condos and single-family residences, fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million in December compared with the previous month, according to National Association of Realtors data. That was a bigger drop than analysts had expected and the lowest sales rate since August. It was also the biggest monthly decrease on records that date to 1968, according to the industry group.
The December decline "was payback for the tax credit," said Patrick Newport, an economist for IHS Global Insight.
Congress extended the tax credit until April 30 and expanded it to more potential buyers, raising hopes among some analysts that sales will pick up in the spring. The surprisingly large drop in December raises questions about the strength of the recovery once the revamped tax-credit program expires, analysts said.
"Given that the tax credit appears to account for a good deal of the improvement in the housing market . . . we're becoming increasingly concerned that the housing recovery will falter once it is removed," said Paul Dales, economist for Capital Economics.
The weak sales come as a Federal Reserve program that has kept interest rates near historic lows is set to expire. If interest rates rise this year, it could make a home purchase too expensive for some buyers, analysts have said. The weak labor market and an expected uptick in foreclosures are also expected to weigh on the housing market this year, they said.
Every region in the country had a drop-off in sales in December. The Midwest had the deepest decline, 26 percent, compared with 16 percent in the South, which includes the Washington region. Excluding condos, sales in the Washington region rose 4 percent in December, compared with the same period last year, according to the industry data, and median homes prices in the region rose 7 percent to $310,200.
Industry officials point to some bright spots in the data. Median home prices rose 1.5 percent to $178,300 in December compared with the same period a year ago -- the first yearly increase since August 2007. That was because first-time home buyers made up a smaller part of the market, shifting sales to more expensive homes. Also, sales were up 15 percent compared with the corresponding period in 2008, and the inventory of homes on the market fell more than 6 percent, according to the Realtors.
"It's significant that home sales remain above year-ago levels," said Lawrence Yun, the group's chief economist. "By early summer the overall market should benefit from [a] more balanced inventory, and sales are on track to rise again in 2010."
Overall, the housing market in 2009 was better than the year before. About 5.1 million existing homes were sold last year, up 4.9 percent compared with 2008. That was the first annual sales gain since 2005, partly due to the precipitous decline in home prices.
For all of 2009, the median existing-home prices fell to $173,500, down 12.4 percent from $198,100 in 2008.