June 2, 2010
Tax Deal Fuels New-Home Sales

Sales of newly built homes soared in April as buyers rushed to take advantage of an expiring tax credit.

The Commerce Department said Wednesday that sales of new single-family homes rose 14.8% from the prior month to a seasonally adjusted annual rate of 504,000.

Demand for new homes had also surged in March, when sales climbed 29.9% from the prior month. Sales in April were 47.8% higher than a year earlier.

The recent surge was likely the result of expiring government incentives, which provided an $8,000 tax credit for first-time buyers and a $6,500 credit for repeat homeowners. Contracts for those homes had to be signed by April 30. Buyers have to complete purchases by June 30.

The housing market is stabilizing after both sales and prices plummeted during the recession. Sales of existing homes, a far bigger number than newly built homes, jumped 7.6% in April, the National Association of Realtors said earlier this week.

Construction of new homes also is picking up. Starts for single-family homes rose 10.2% in April from March, the fourth-straight monthly rise, Commerce said earlier this month.

New-Home Sales Jump

Indices of home prices are no longer dropping precipitously; the closely watched Case-Schiller index has fallen for the past six months, but is above year-ago levels.

Some economists say the April tax-credit deadline pulled forward some sales that, with the absence of the tax credit, might have taken place this summer. That could cause home sales to sag in coming months.

"Sales are on a mildly upward trend if you kind of look through those numbers," said Peter Newland, a Barclays Capital analyst, "but certainly that won't be apparent in the next few months, as you see the payback from the tax credit."

The increase in sales brought the backlog of new homes down to five months, based on the current rate of sales, from 6.2 months in March.

The median price of a new home fell to $198,400 last month from $219,600 in March, which was likely influenced by the tax credit also.

"Those who wanted to tap the tax credit tended to buy cheaper houses," said Aichi Amemiya, a Nomura Securities International Inc. economist.

Source: The Wall Street Journal, May 27, 2010

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