Homebuyer Tax Credit Likely Extended if Recovery Stalls: John Burns
While many project the economy will be on stable footing by this summer, real estate consultant John Burns believes if it's not, Congress may once again extend the homebuyer tax credit.
“A lot of people are not buying homes right now because they’re worried about their jobs,” Burns, president of John Burns Real Estate Consulting (JBREC), said in an interview with HousingWire. “If the economy’s not on stable ground in May or June, I wouldn’t be surprised to see it extended again.”
Despite the November extension and expansion to the homebuyer tax credit, an extraordinary government stimulus measure enacted to boost housing activity, new home sales took a 7.6% drop in December, according to data released by the Commerce Department’s Census Bureau and the Department of Housing and Urban Development (HUD). The results come on the heels of National Association of Realtors (NAR) reports of similar December declines in existing home sales.
Sales of new single-family houses hit a seasonally adjusted annual rate of 342,000 in December 2009, down 7.6% from the revised November rate of 370,000 and 8.6% below the December 2008 estimate 374,000.
“The fact that the tax credit was extended helped new home sales,” Burns said. “Without the tax credit extension, this number would have been in the 200s.”
The median sales price in December was $221,300, down from $217,400 in November. The average was $290,600 in December, up from $280,300 in November.
At the end of December, the seasonally adjusted estimate of new houses for sale was 231,000, representing an 8.1-month supply of homes at the current sales rate, up from 7.9-month supply in November.
For all of 2009, the report estimates 374,000 new homes were sold, 22.9% fewer than the 2008 estimate of 485,000.
The homebuyer tax credit extended for first time homebuyers and expanded to include existing homeowners requires buyers have a contract in place by April 30 and close by June 30. The problem, homebuilder insiders and real estate agents tell HousingWire, is that consumers who tried to take advantage of the tax credit too late in the fall before realizing there wasn’t enough time to close a deal by the original Nov. 30 expiration date have yet to reengage themselves in the home buying process.
“With new homes, the homebuilders ran out of everything they could close by the end of November,” Burns said. “There were people that wanted to buy in these communities that didn’t because they couldn’t close in time.”
December’s cold weather not only slowed construction for builders, but also kept prospective buyers from shopping. It remains to be seen when those prospective buyers will return to the home shopping process.
Wednesday’s results follow last week’s joint Census-HUD report that housing starts and completions were down, but building permits were up in December. As HousingWire previously reported, the JBREC December monthly builder survey showed optimism among 264 home building industry executives from public and private companies. The belief that builders will have increased community count, better orders and slightly higher prices has 57% of respondents planning for more revenue in 2010 than in 2009.
Another confidence booster is the tax refund many builders are receiving from the temporary extension of the terms of net operating (NOL) carryback laws, which let builder recoup losses from taxes paid in profitable years.
“It’s given them more confidence in their cash balances and they’re wanting to start more speculative homes because of the extra cash that they now have,” Burns said.
Both new and existing home sales dropped in December. NAR said December’s drop in existing homes sales was “expected,” because of a late surge of buyers looking to get into a home before the tax credit was originally set to expire.
Another lingering question is what the industry learned from December’s sales results and what the industry could expect after buyers won’t be able to take advantage of the tax credit, if it's not extended.
NAR doesn’t project a repeat of December’s results in May. Despite December’s results, NAR believes the traditional summer selling season will be strong enough to absorb any drop experienced by the sunset of the tax credit.
“We expect a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit, which hopefully will take us into a self-sustaining market in the second half of 2010,” said NAR chief economist Lawrence Yun.
Burns agrees, but said it depends on whether the widely-held assumption that the economy will be growing again by this summer pans out. If not, it's possible lawmakers will extend the tax credit, if for only self-serving goals.
“The tax credit extension, and all of politics this summer, is going to be about officials getting reelected in November,” he said. “It’s going to come down to if the economy needs a boost, the elected officials are going to give it one because they can’t afford for the economy to go into the tank before the election.”
Write to Austin Kilgore.
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