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TMCNet: Tax credit spurs home sales, but few expect it to last

[November 23, 2009]

Tax credit spurs home sales, but few expect it to last

PHILADELPHIA, Nov 23, 2009 (The Philadelphia Inquirer - McClatchy-Tribune News Service via COMTEX) -- Propped up by government tax credits, existing-home sales exploded in October, the National Association of Realtors said Monday.

Sales were 23.5 percent higher than in October 2008 and 10.1 percent greater than in September. This was the highest pace of selling activity since February 2007, just as the housing boom was winding down nationally.

The median existing single-family home price was $173,100 in October, down 6.8 percent from a year ago, the NAR said.

The rush of buyers was intensified during October by wrangling in Congress over extending and expanding the credit into 2010.

"The government learned the joys of bait-and-switch as the prospect of the first-time buyers' subsidy ending, which it didn't, caused almost panic buying," said economist Joel L. Naroff, president of Naroff Economic Advisors in Holland, Pa.

The extension, which begins Monday and ends April 30, continues the $8,000 tax credit for first-time buyers. For other home buyers, it adds a $6,500 credit for those who have lived in their houses for at least five years. It also increases income limits.

The report was much better than expected, but economists do not expect the pace to be sustainable.

"We really shouldn't start to believe the housing market is in great shape again," Naroff said, calling the surge temporary as people raced for the credit.

Patrick Newport of IHS Global Insight projects that "sales will drop in the first quarter of 2010, payback from the first tax credit." "Sales will take a second hit in the third quarter of 2010, payback from the second tax credit," Newport said. "Overall, sales in 2010 will be about the same as in 2009." ___ (c) 2009, The Philadelphia Inquirer.

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