July 1, 2010
Once the federal homebuyers' tax credit expired at the end of April, buyers appeared to evaporate. May's pending home sales, measured by the National Association of Realtors (NAR), crashed by 30 percent, a record decline.
Pending sales reflect contracts signed but sales that have not yet closed. While a large drop off after the tax credit expiration was not unexpected, few expected the drop to be this pronounced.
"Consumers are rational and they rushed to meet the tax credit eligibility deadline in April," said NAR chief economist Lawrence Yun. "The sharp decline in contract signings in May is a natural result with similar low levels of sales activity anticipated in June."
Of course, all real estate is local. NAR reports some local markets such as Portland, Maine, and Jacksonville, Fla., actually experienced an increase in contract signings from a year ago without the tax credit.
The Pending Home Sales Index, a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April, and is 15.9 percent below May 2009 when it was 92.3. The falloff comes on the heels of three strong monthly gains as home buyers rushed to take advantage of the tax credit.
Consumers who bought a home for the first time and who had signed a contract before the end of April are eligible to receive $8,000 from the government. Buyers who are selling a home and buying a new home are eligible for $6,500.
As many as 180,000 buyers who signed contracts by April 30 may have missed the June 30 closing deadline for the tax credit. However, Congress passed legislation yesterday to extend the deadline for delayed contracts and President Obama is expected to sign it.
