Existing-home sales took nose dive in December

McClatchy NewspapersJanuary 25, 2010 

Washington — After increasing for three straight months, existing-home sales took a steeper-than-expected dive in December, as spooked first-time homebuyers put the brakes on purchases, fearing that a generous government tax credit would expire at the end of November.

Total sales of single-family homes, townhomes, condominiums and co-ops fell 16.7 percent, from a seasonally adjusted rate of 6.5 million units in November to 5.4 million in December, the National Association of Realtors reported Monday.

"December's plunge in existing-home sales is payback for the $8,000 first-time homebuyer's tax credit," which had been set to expire Nov. 30, said Patrick Newport, an economist at IHS Global Insight.

Despite the year-end slowdown — the greatest monthly decline in 40 years — December sales were 15 percent higher than the 4.74 million units that were sold in December 2008.

For the year, existing home sales in 2009 rose 4.9 percent over 2008, marking the first annual sales gain since 2005.

Demand for existing homes fell in December as the tax credit's original deadline passed, but the Worker, Homeownership and Business Assistance Act of 2009 extended the tax credit to sales through April 30. The legislation also established a $6,500 tax credit for repeat homebuyers who purchase principal residences through the end of April.

"We'll likely have another surge in the spring as homebuyers take advantage of the extended and expanded tax credit," said Lawrence Yun, the chief economist at the Realtors association. "By early summer, the overall market should benefit from more balanced inventory, and sales are on track to rise again in 2010," unless the sluggish jobs market cools the housing recovery.

Newport wasn't so optimistic. He said it was unclear whether the credit for current homeowners would jump-start sales as the one for new homebuyers did. So far, the effect has been minimal, he said. Mortgage applications are near their lowest level since 1997, even though mortgage interest rates are historically low and are likely to increase throughout the year.

Newport said the main impact of the second tax credit would be to push sales from the second half of 2010 into the first half. Overall, he expects existing-home sales to be weaker this year.

"Our forecast has sales dropping in the first quarter of 2010," he said. "Sales will take a second hit in the third quarter of 2010, (as) payback from the second tax credit."

"2010 is going to be a pretty uninspiring year for housing," with higher mortgage rates and not much of a rise in sales, said John Ryding, the chief economist at RDQ Economics.

The median price for all types of existing homes was $178,300 in December, up 1.5 percent from December 2008. It was the first year-to-year increase in the median price since August 2007.

However, for all of 2009, the median price for a single-family home was $173,200, down 12 percent from 2008.

Looming large over the nation's housing market is the expected March expiration of a Federal Reserve program that stepped in to purchase more than $1 trillion in mortgage securities when a lack of buyers in the private market had frozen the banking industry's ability to lend and jeopardized the nation's economy. The massive federal effort helped push mortgage rates down and revive the ailing housing industry by spurring sales and refinancings.

Analysts question whether the housing market is ready to sustain itself without the government largesse. Ryding said the planned pullout in March could cause interest rates on 30-year mortgages to increase by a half-point. "I think that's a real risk, and that would put something of a damper on the housing recovery," he said.

Brian Bethune, the chief U.S. economist at IHS Global Insight, said there should be no impact, however, because financial markets had been anticipating the program's demise and already had adjusted prices for it.

"There shouldn't be any impact," he said. "That doesn't mean rates won't move around. They will bounce around, but our expectation is that we don't see any net upward pressure on mortgage rates."

The Fed, which is expected to announce its plans for the program this week, could extend the support if necessary.

Bethune said March might be too soon to pull the plug because banks were still absorbing losses and rebuilding their capital and earnings and might not be strong enough to provide the necessary credit to keep the housing industry afloat.

"It's a calculated risk the Fed is taking, that things will be strong enough out there by the end of March to support normal functioning of the credit markets. But I would say it's a little to optimistic."

(Allison Stice contributed to this story.)

MORE FROM MCCLATCHY

To ask a question about this story or any economic question, go to McClatchy's economy Q&A

Obama wants stimulus projects to hire more minorities, women

What can you do about high credit card rates? Not much

Economy's plunge forcing more kids into school lunch plans

Obama urged to turn successful state job program national

Americans are getting poorer, and it's going to get worse

Expiring insurance subsidy imperils laid-off Americans

McClatchy Newspapers 2010

McClatchy Washington Bureau is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service