Existing-home sales in April boosted 7.6 percent by buyers' rush for tax credit

By Dina ElBoghdady
Washington Post Staff Writer
Tuesday, May 25, 2010; A19

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.

For now, however, the tax credit and the ensuing buying frenzy appear to be helping raise prices.

The national median price for existing homes across all property types -- single-family homes, town homes, condominiums and cooperatives -- was $173,100, up 2 percent from March and 4 percent from April 2009. That's the biggest year-over-year price increase since May 2006.

Median prices also rose in all four regions of the country in April 2010 from a year earlier, and in 18 out of the nation's 20 major statistical areas, the report said.

In the Washington area, median prices rose 10.9 percent from a year earlier while sales jumped 18.2 percent.

Lawrence Yun, the Realtor group's chief economist, said in a statement that the dramatic price declines of recent years seem to be over. "In fact, a majority of the markets have seen price gains recently," he said.

Clearing the glut of homes has been key to stabilizing prices. The raw number of unsold homes is nearly 12 percent below the July 2008 peak, the group said.

But total inventory at the end of April rose 11.5 percent, which represents an 8.4-month supply in April, compared with an 8.1-month supply in March. That means it would take 8.4 months to sell the homes at the current sales pace if no more homes are added to the market.

While the home supply traditionally rises from March to April as the selling season kicks in, this year's increase goes beyond the norm, Yun said.

The rise might be positive if it reflects increased willingness by owners to list their homes because they feel more confident about the market, Yun said. Those sellers would typically buy new homes and spur sales, he said.

But if the increase is occurring because more banks are listing the foreclosures they had been holding on to, then "it may take longer for the inventory to be absorbed," Yun said.

© 2010 The Washington Post Company