Home Buyer Tax Credit Is Over, So Now What?

While vacancy rates remain high, they are down from their recent peak. Expected improvement in labor markets has also encouraged multifamily developers to begin planning new projects that can easily take one to two years to complete after they receive permits. Courtesy of Charlotte Business Journal

In the aftermath of the deadline for the home-buyer-tax-credit, which advanced a significant amount of housing demand into April, monthly housing indicators turned negative.

The deadline for signing a purchase contract has passed, but the deadline for closing is June 30 and could be extended to September if legislation already passed in the House passes in the Senate and is signed into law.

Since existing home sales are reported at closing, they are not expected to fall off until July. Nevertheless, they were down 2 percent to 5.66 million in May, although this could be due in part to a crush of closings causing delays and backlogs.

Putting the May sales decline into perspective, it was preceded by a 15 percent increase in sales in April. The average sales pace for the two months combined was 373,000, which was a 3 percent increase over the average for this year's first quarter. A similar, although smaller, decline occurred in December, when the 2009 home buyer credit was scheduled to expire but was extended.

Beyond the influence of the tax credit, the more volatile multifamily starts jumped 33 percent to 125,000 in May from April's 94,000 and multifamily permits were up 10 percent, suggesting that the apartment market may finally have reached bottom.

The real question now is whether what occurred in May is a harbinger of a housing market still unable to work up enough momentum on its own to sustain a recovery or simply a temporary side-effect of the tax credit doing its job.

Although housing activity in May was generally weaker than anticipated, several factors continue to support NAHB's forecast for improvements in 2010. Mortgage interest rates are expected to remain at historically low levels for the remainder of 2010, with only a modest increase in 2011. House prices are back to where they were in 2003.

- Courtesy of NAHB