By Renae Merle
Washington Post Staff Writer
Wednesday, March 24, 2010; A13
Existing-home sales fell for the third consecutive month in February, fueling concerns that the tax credit for home buyers that helped revive the market last year won't provide a comparable boost during this spring's buying season.
An $8,000 tax credit for qualified first-time home buyers helped give the nation's sagging housing market a lift in 2009. But sales levels have fallen 23 percent since November, when the tax credit was initially scheduled to expire.
Congress extended and expanded the tax credit to more buyers, but now some economists worry that, even if there's a pickup in sales over the next few months, it might prove to be temporary.
Sales of existing houses, townhouses, condominiums and cooperatives fell 0.6 percent to a seasonally adjusted rate of 5.02 percent in February compared with the previous month, according to data released Tuesday by the National Association of Realtors. That was in line with analysts' expectations and a much smaller drop than in December and January.
Bad weather kept some buyers on the sidelines, but the market still appears stronger than last year, economists said. Existing-home sales rose in the Northeast and Midwest in February, helping offset declines in the rest of the country. Sales fell 4.7 percent in the West and 1.1 percent in the South, which includes the Washington region.
Despite the overall decline in sales, bargain hunters have emerged to take advantage of historically low interest rates and cheap foreclosed properties. The Realtors' group estimated that 35 percent of sales last month were of distressed properties. Median home prices fell 1.8 percent in February to $165,100 compared with the same period last year.
But economists were puzzled by a 9.5 percent increase in the housing inventory -- a rise that resulted, in part, from lenders' decision to put more foreclosed properties on the market. It would take 8.6 months to sell all the homes on the market at the current sales rate, compared with a 7.8 month supply in January, according to the industry data.
"If we can just stop the foreclosures from coming online and stop the increase in inventory, we could finally get to a point where we're turning the corner on the housing market," said Tim Quinlan, a Wells Fargo economist.
This makes a strong spring selling season even more important, Quinlan said. "For a while, we were making some progress with inventories, and now it's building up again," he said.
Realtors have pinned their hopes on the renewed tax credit for first-time home buyers. Under terms approved by Congress, buyers have until April 30 to sign a contract for a home and qualify for the $8,000 tax credit. Repeat buyers are eligible for a $6,500 tax credit with the same time restrictions.
But some economists are raising concerns about whether the renewed tax credit will have a similar effect on the housing market.
"Unfortunately, despite the high hopes associated with the extended and expanded homebuyer tax credit, housing activity appears to have faced a setback that went beyond the impact of adverse weather conditions," Fannie Mae, the mortgage financing company, said in its monthly economics and mortgage market analysis.
The analysis, issued last week, also said that the credit may have "dried up" the pool of qualified first-time buyers and that the credit being offered to repeat buyers may not be generous enough to spur sales activity. Fannie Mae still expects an increase in homes sales this year, but it lowered its projection to 9 percent from 12 percent.
"The key question remains whether the second home-buyers tax credit will boost sales. So far, the housing recovery is very slow, and the second tax credit appears to be having a minimal effect," said Gregory Daco, an economist for IHS Global Insight.
Sales will probably rebound in the second quarter as buyers rush to complete deals before the tax credit expires, economists argue. But sales could begin to fall in the second half of the year, dragging down prices, they said.
"I think what we have seen really is that the recovery we saw at the last year was largely due to the tax credit. We're likely to have another burst, but my concern is that once that goes through, we will see another [decline] and the housing market will look quite weak," said Paul Dales, an analyst at Capital Economics.