Pending Home Sales Up Again as Homebuyer Tax Credit Expires: NAR
Pending home sales were on the rise for the third consecutive month in April, as potential homeowners rushed to have contracts signed by the April 30 deadline for the homebuyer tax credit.
The National Association of Realtors (NAR) Pending Home Sales Index increased 6% to 110.9 based on sales contracts signed in April and is 22.4% higher than the April 2009 level of 90.6. The index increased 7.1% in March and 8.3% in February, both upwardly revised from their original points. An index value of 100 reflects contract activity during 2001, the first year NAR examined pending home sales.
Pending home sales are at the highest level since October 2009, when the homebuyers were rushing to beat the previous expiration of the tax credit. The index is a forward-looking measure of sales based on signed contracts, with closings generally occurring one or two months later.
“The home buyer tax credit brought close to 1m additional buyers into the market, which is now helping the trade-up market and has significantly improved the inventory situation," said NAR chief economist Lawrence Yun. "This stabilized home prices more quickly and has preserved about $900bn in home equity; in turn, that is keeping additional households from going underwater and risking foreclosure."
Yun added the surge in sales from the tax credit extension looks as strong as the original tax credit.
“There were concerns that only a small pool of buyers were left to take advantage of the tax credit extension. But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales,” he said. “The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.”
NAR expects a net of 1m additional jobs in the second half of 2010 and 2m new jobs in 2011.
Regionally, pending sales increased the most in Northeast. The 29.5% jump from March to April puts the index 24.5% above its April 2009 level. In the West, pending sales were up 7.5% and are 12% above April 2009. The Midwest experienced a 4.1% increase in pending sales, putting the index 17.9% above its level one year ago. The South was the only region to experience a decline. There the 0.6% decrease kept pending sales 31.3% above the April 2009 level.
In order to claim the homebuyer tax credit, individuals must have a contract signed by April 30, but have until June 30 to close the deal. First-time homebuyers are eligible for an $8,000 credit, while existing homeowners are eligible for $3,500.
“A big concern surfacing recently is insufficient time to close the deal at the settlement table. Under normal circumstances, two months would be enough time from contract signing to settlement date,” Yun said. “However, the recent housing cycle has brought long delays related to the short sales approval process by banks, and from ongoing appraisal issues. There could be a sizable number of homebuyers who responded to tax credit incentives, but may encounter problems meeting the settlement deadline by June 30.”
NAR said it is asking Congress to provide flexibility on the deadline for closing.
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