Existing-home sales in April boosted 7.6 percent by buyers' rush for tax credit
Tuesday, May 25, 2010
Sales of previously owned homes surged in April to higher levels than analysts expected as buyers rushed to take advantage of a lucrative tax credit before it expired along with low interest rates and affordable prices, according to industry data released Monday.
Sales of existing homes, which consist mainly of single-family houses, town homes and condominiums, jumped 7.6 percent in April from March to a seasonally adjusted rate of 5.77 million units, the National Association of Realtors reported. Sales were up 22.8 percent from the comparable period a year earlier, the group said.
The new figures reflect significant improvements in the country's housing market as the selling season takes off. But they could prove short-lived once the tax-credit benefit fades.
Every region in the country experienced solid month-to-month gains except for the West, where sales fell 6.2 percent. The strongest showing was in the Northeast, where sales climbed 21.1 percent.
Trailing behind were the Midwest and the South, which rose 9.9 percent and 8.6 percent, respectively.
But even as sales rose, the supply of for-sale homes grew more than the Realtors' group expected, putting a damper on otherwise upbeat results.
As key elements in boosting sales, the report highlighted an $8,000 tax credit available to some first-time home buyers and a $6,500 tax credit available to certain homeowners who buy a new primary residence. But many who track the industry warned not to read too much into the spike in sales ahead of the tax credit's expiring.
"The sales would be very healthy if they were happening on their own, but they're happening with the helpful hand of Uncle Sam," said Michael Larson, a housing analyst at Weiss Research.
Many economists say they suspect that the tax credit lured people who were already planning to buy houses into purchasing them earlier than planned. This means the robust sales activity of the past two months could eat into sales later this summer.
To get the tax credit, a buyer must have entered into a contract by April 30 and complete the transaction by June 30. Patrick Newport, an economist at IHS Global Insight, said sales could keep climbing through June as more of these transactions close.
"But at some point, they are going to drop sharply," he said. Unless the job market improves, sales will probably dive back below the 5 million mark later in the selling season, which typically lasts through August, Newport said.
Already, mortgage applications for home purchases plunged 27 percent in the week ended May 14 from the previous week, although interest rates remain relatively low, hovering around 5 percent, according to the most recent Mortgage Bankers Association report.