Housing sales stronger because of the expiration of tax credit

Total existing home sales were stronger than forecasts, rising 6.8% to 5.35 million units in March from 5.01 million units in February. Single-family existing home sales increased 7.3% in March, while condo sales rose 3.1%. Existing home sales increased in all four census regions.

BOTTOM LINE

Although we think the housing market is in a very gradual recovery, the extent of the rise in home sales was likely the result of the anticipated expiration of the homebuyers’ tax credit at the end of April (note that 44% of sales in March were purchases by first-time buyers). Unlike the credit that ended in November 2009 (which was based on contract closings), the current credit will be extended to binding sales contracts signed before April 30 and completed before June 30. As a result there will likely be less of a pronounced surge in April and the drop off in sales may not be seen until the third quarter. It will be some time, therefore, before we can judge the underlying trend in home sales. The NAR also noted that the percentage of distressed sales in March was unchanged at 35% (but down from 50% a year ago).

Look for sales to drop again as the credits are finished.

Source RDQ

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