Tax Credit Drives Increase in Pending Sales

The National Association of Realtors’ Pending Home Sales Index — a forward looking indicator based on contracts signed in December — increased 1.0 percent to 96.6 from 95.6 in November, and remains 10.9 percent above December 2008 when it was 87.1

In November, the monthly index had fallen by 16.4 percent from surging activity in preceding months. Lawrence Yun, NAR chief economist, said it’s important to recognize how the tax credit is skewing market data. “There are easily understood swings in contract activity as buyers responded to a tax credit that was expiring and was then extended and expanded,” he said. “These swings are masking the underlying trend, which is a broad improvement over year ago levels. December activity was the fifth highest monthly tally in two years.”

Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for a tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

In the West United States NAR’s pending sales index fell 3.8 percent to 119.9 but is 18.6 percent above a year ago. Yun projects the extended and expanded tax credit will encourage 2.4 million households to take the credit in 2010.

“While new-home sales will remain low due to a lack of construction, existing home sales are projected to rise to around 5.6 million in 2010,” Yun said. Last year there were 5.16 million existing-home sales.

He added that one of the greatest benefits of rising sales will be firming home prices.

“For several months now we’ve been seeing stabilization in all of the home price measures as inventory is pulled down,” Yun said. “As a result, the housing wealth for many middle class families has begun to stabilize.”