Us Home Sales Plunge Due To Tax Uncertainty
Sales of previously-owned US homes have fallen in December as the boost from a popular
tax credit expired, the National Association of Realtors (NAR) says.
New home sales fell 7.6 % to a 342,000 unit annual rate in December 2009, from an upwardly revised 370,000 unit pace in November, the Commerce Department said. It was the second straight month that new home sales had declined. Markets had expected a 370,000 unit annual pace from November's previously reported 355,000 unit rate. The regular price of new homes in the US also fell in December, dropping by 3.6 % to $221,300.
Demand for existing homes had accelerated in large, due to the tax credit of up to $8,000 for first-time home buyers, but that credit was due to expire on Nov. 30, 2009. Many new home buyers rushed to buy before that deadline, pushing up the sales rate. This is also why 51% of purchasers were first-time home buyers in November. But with the tax credit due to expire, sales as well as the first-time buyers dropped out of the market; purchases by first-time buyers declined to 43% of homes as on December 2009 .
Lawrence Yun, chief economist for the NAR, said the market was going through a period of swings driven by the tax credit. He said "Job creation is the key to a continued recovery in the second half of the year", and mentioned "I anticipate interest rates will be closer to 6% by year's end", and included "It is a drag to the (housing) recovery but not damaging. Job creation in the second half of the year should offset that". He also describes these figures as being "probably the largest annual drop since the Great Depression". Yun also highlighted that elevated unemployment poses a challenge to recover the declining US housing sector, where the defaults on mortgages more than two years ago triggered the global financial crisis. The US unemployment rate held steady at 10% in December while the economy shed 85,000 jobs, according to official data. The data also showed that more than seven million Americans lost their jobs, in the recession that officially began in December 2007, and nearly 25 million Americans are unemployed or underemployed, because they could not find full-time work, or have given up looking for work.
Paul Dales, US economist with Capital Economics in Toronto, said that he expected sales to remain subdued for the next few months before spiking up again as the new tax credit expires at the end of April. Mr Dales said "Given that the tax credit appears to account for a good deal of the improvement in the housing market - the NAR suggests that first-time buyers, who benefit most from the tax credit, were still responsible for 43% of December's sales - we're becoming increasingly concerned that the housing recovery will falter once it is removed." He also stated "The figures add to recent evidence that the recovery in the housing market will falter once the fiscal support is removed".
All four regions of the country saw a decline in sales. In the Northeast, sales fell to 19.5%, in the Midwest, they dipped to 25.8%. The South, saw a decline of 16.3%, and in the West, sales went down by 4.8%. US stocks also fell slightly after the announcement, but went back up later the very same day. The US stocks scaled back on gains after data showed a bigger-than-expected drop in existing home sales in December.
Commentators pointed out that there is little reason to expect a stable betterment of the housing situation outside of a recovery in employment. "I don't think there's going to be a lot of buyers out there looking for a home outside of the tax-induced effects until they feel more comfortable with the labor market," Adam York, an economist at Wells Fargo Securities, North Carolina. But very few commentators expect any sort of a recovery in the near future. Economists forecast that unemployment will stay at 10% this year, the highest annual unemployment rate since the Great Depression.
by: Brian Jones
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