Homebuyer Tax Credit Drives Up Sales, but Congress Holds the Cards

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Sales on existing homes that closed in May were up 19.2 percent from a year ago, according to the National Association of Realtors. But will that pace continue now that buyers have missed the tax credit? Probably not. Most likely some people who may have bought during the summer months signed contracts by April 30 to take advantage of the tax credit.

Indeed, some of these sales could fall apart if Congress does not extend the time to close homes until Sept. 30 rather than the June 30 deadline now law. Also, Congress needs to extend the National Flood Insurance Program, which has temporarily expired. Homes requiring flood insurance can't go to closing until that program is extended.

"We are witnessing the ongoing effects of the home buyer tax credit, which we'll also see in June real estate closings," Lawrence Yun, NAR's chief economist said in a statement released with the report. "However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales."

He added that "many potential sales are being delayed by an interruption in the National Flood Insurance Program. Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance."
But a slowdown was already seen by Freddie Mac for new 30-year conventional, fixed-rate mortgage commitments. New commitments fell from 5.10 percent in April, when the credit was still available, to 4.89 in May, but that's still slightly above the 4.86 percent figure in May 2009.

Other bits of news in the May numbers:

  • The national median existing home price for all housing types was up 2.7 percent in May over May 2009 to $179,600.
  • Distressed sales were down a bit to 31 percent of sales in April from 33 percent in May.
  • First-time buyers continue to lead the purchases with 46 of existing home sales bought by first time buyers. That is down slightly from 49 percent in April.
  • Investors bought 14 percent of the homes sold in May, down from 15 percent in April.
  • All cash sales were down from 26 percent in April to 25 percent in May. The key to maintaining this level sales and possibly improving sales numbers will be job growth and a "manageable level of foreclosures," Yun added.

Sales growth was seen throughout the U.S. over May 2009. The West was up by 15.2 percent over May 2009. The South saw sales rise by 22.9 percent over a year ago. The Northeast fell 18.3 percent from April to May, but is still up 12.7 over a year ago. The Midwest barely gained in May over April with an increase of 1.33 percent, but was 22 percent over May 2009.

The top metro areas for existing sales over May 2009 included Portland (up 40.6 percent), Boston (up 36.2 percent), Philadelphia (up 35.7 percent) and New Orleans (up 31.7 percent). New York was the only major Metro area that saw a drop in sales by 11.7 percent from May 2009.

Home prices also rose in May 2010 throughout most of the U.S. Top gainers included Philadelphia (up 28.5 percent), San Diego (up 18.2 percent) and Phoenix (up 10.8 percent). Only four metro areas saw a small drop in price. These include San Antonio (4.4 percent), Baltimore (3.7 percent), Houston (1.8 percent) and Portland (0.6 percent).

Clearly as the market stabilizes, we're seeing it move back the dominance of local market trends, as prices move up in some and down in others. Also some areas are seeing a mini-housing boom, while others see a bust.

Congress's upcoming decisions regarding the homebuyer tax credit deadline extension and other housing initiatives will likely play a key role in determining whether those mini-booms will spread or simply fizzle out.

Lita Epstein has written more than 25 books, including "The 250 Questions Everyone Should Ask About Buying Foreclosures."

See homes for sale at AOL Real Estate.

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