In the first month after the first time homebuyer tax credit expired, pending home sales plummeted 30%, as reported by Housingwire.
Prior to the tax credit expiration, the housing market experienced three solid month-over-month housing sale increases. The National Association of Realtors’ (NAR) pending home sales indexed declined to 77.6 in May, down from 110.9 in April—a 30% decrease in a month. It is also down 15.9% from its May 2009 level. The index is used as an indicator of future sales.
NAR Chief Economist, Lawrence Yun says that despite the drop in existing home sale prices, the tax credit helped stabilize home prices.
“Without the tax credit, there will be more aggressive price negotiations between buyers and sellers,” Yun said. “The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private sector job creation in the second half of the year.”
Yun also said that buyers are rational and that the rush to sign contracts by April followed by a slump in May is to be expected under the circumstances. He likewise predicts similarly low levels of contract activity in June numbers. This conflicts with projections he made in March where he claimed existing home sales would surge in April, May and June. He attributes these changes to a delay in the closing process and the 180,000 buyers who were in danger of losing the first-time-homebuyer tax credits. This has since been remedied with the recent extension of the closing deadline.
Yun is now projecting that home sales in June will remain elevated and then decline in July and August.
“If jobs come back as expected, the pace of home sales should pick up later this year and reach a sustainable level of activity given very favorable affordability conditions,” he said Thursday. “In most areas of the country there will be no sharp snap back in home prices in the upcoming years, although some local markets have experienced double-digit gains this year.”
