New home sales take surprise tumble

New home sales take surprise tumble

Effect of the soon-to-expire, first-time buyer tax credit begins to fade

The Associated Press

updated 10:21 a.m. MT, Wed., Oct . 28, 2009

WASHINGTON - Sales of new homes dropped unexpectedly last month as the effects of a temporary tax credit for first-time owners started to wane.

The Commerce Department said Wednesday that sales fell 3.6 percent to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. Economists surveyed by Thomson Reuters had expected a pace of 440,000.

It was the first decline since March. Sales in September were off 7.8 percent from a year ago. Despite the surprising decline, the market is up 22 percent from the bottom in January, though down more than 70 percent from the peak in July 2005.

The median sales price of $204,800 was off 9.1 percent from $225,200 a year earlier, but up 2.5 percent from August's $199,900.

The drop in sales was driven by a nearly 11 percent decline in the West and a 10 percent drop in the South. Sales rose 35 percent in the Midwest and were unchanged in the Northeast.

The report reflects contracts to buy homes, not completed sales. It has been taking longer to close a transaction this year because it's taking longer to get approved for a mortgage and to have a property appraised.

Those time lags could make buyers nervous they won't be able to complete the deal before the Nov. 30 deadline to take advantage of a tax credit of up to $8,000 for first-time buyers.

The report "demonstrates the power of the first-time homebuyers tax credit," said Bernard Markstein, senior economist with the National Association of Home Builders, which has been lobbying Congress to extend and expand the tax incentive. "We just haven't gotten the economy back to the point where we can step back and say the housing market doesn't need any more support."

Congress is considering extending the tax credit through March 31 and gradually phasing it out over the rest of next year. "If they don't extend it, then I think the pullback could be quite significant," said Brad Hunter, chief economist with Metrostudy, a real estate research firm.

Critics, however, say many buyers would have entered the market anyway and call the credit an unnecessary subsidy for people who don't need it.

Low mortgage rates, the tax credit and more affordably priced homes have provided a big lift to the housing market this year. Sales of previously occupied homes, for example, jumped more than 9 percent in September. That report measures completed sales rather than sales agreements.

There were 251,000 new homes for sale at the end of September, down almost 4 percent from August and the lowest inventory in nearly 27 years. At the current sales pace, that represents 7.5 months of supply.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

URL: http://www.msnbc.msn.com/id/33505013/ns/business-real_estate/

business

Homebuyer tax credit extended

By Margaret Jackson
The Denver Post

Posted: 11/06/2009 01:00:00 AM MST

The U.S. House of Representatives on Thursday extended a soon-to-expire $8,000 tax credit for first-time homebuyers through April and expanded the program to include a $6,500 credit for buyers who have owned their existing homes for at least five years.

Local real estate agents said the bill, which President Barack Obama is expected to sign today, will make it easier for homeowners to get back in the market. The measure also includes provisions to extend unemployment benefits and a tax break for businesses that are losing money.

"They're calling it the move-up credit," Rachel Hultin, a broker with Denver's Urban Niche Realty, said of the credit for homebuyers. "But it will allow people to sell homes and do a lateral or buy-down move. If they had to bring money to a closing and that $6,500 wasn't on the table, they might not be able to do it."

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of economic-stimulus efforts. The program was set to expire at the end of the month.

Both first-time and move-up buyers now have to sign a purchase agreement by April 30 and close by June 30 to take advantage of the credits.

The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and joint filers with incomes above $225,000.

The credit would be extended an additional year, until June 30, 2011, for members of the military serving outside the United States for at least 90 days.

"I have (first-time buyer) clients who did not get it together fast enough to close by Nov. 30, so I'll have a number of happy clients," said Liana Pomeroy, a certified mortgage-planning specialist with Cherry Creek Mortgage. "Many of my clients just haven't found what they want, and some people need to do some credit repair or save some more money."

Extending and expanding the program is expected to cost the government about $10.8 billion in lost taxes.

"We have seen a very positive impact from the $8,000 first-time-buyer credit and are hopeful this new tax credit will bring the same results," said Dee Chirafisi of Kentwood City Properties. "In today's market, it is always helpful to have an incentive for buyers and a timeline that helps to create a sense of urgency and a reason to buy now."

1.4 million helped

Through August of this year, about 1.4 million people nationwide had taken advantage of the tax credit, accounting for about 40 percent of all purchases, according to estimates by the National Association of Realtors and the National Association of Home Builders. About 350,000 of those buyers would not have purchased their homes without the credit, according to the Realtors group.

The tax credit has had the biggest impact on lower-priced homes because first-time buyers generally look for move-in- ready homes priced less than $200,000.

While the overall market in metro Denver showed an 18 percent drop in sales volume from January through August, the under $200,000, non-distressed segment had a 7 percent increase, according to an analysis of Metrolist data by Lon Welsh at Your Castle Real Estate.

"The tax credit has a total trickle-up effect in our market in all price ranges," said Amy Bachelder Bayer of PorchLight Real Estate Group. "It's instilling confidence in buyers. Entry-level people are making decisions to buy, those sellers are moving up to the next price range, and those people are moving up."

Thought it was too late

The extension means 21-year-old Nick Steele will get to take advantage of the credit after all. Steele, who works for a metro Denver police agency, had been stashing away cash to buy a house. He decided the time was right because of low housing prices, favorable interest rates and the tax credit.

But he couldn't find a house he wanted until it was too late to take advantage of the tax credit.

"I got into the contract thinking that I wasn't going to get the credit, but that was a sacrifice I was going to have to make," he said. "I didn't want to live somewhere I didn't want to be just for the $8,000. Now that they've extended the credit, we should be good."

Margaret Jackson: 303-954-1473 or mjackson@denverpost.com