A Big Drop for Pending Homes Sales in November
However, despite November's drop, the NAR's pending-home sales index is still up 15.5% since November 2008, with the index now at 114.3, compared to 83.1 a year ago.
In general, economists view existing home sales as a more-accurate indicator of housing sector activity than pending home sales, due to the number of pending home sales that fall through because of mortgage problems, title issues, liens and other complications that sometimes prevent signed housing contracts from being finalized.
A Stronger Spring Is Likely
Even so, Lawrence Yun, chief economist for the NAR, said he expected a November sales drop, given the expiration of the original federal tax credit program. "It will be at least early spring before we see notable gains in sales activity as homebuyers respond to the recently extended and expanded tax credit," Yun said in a statement. "The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more homebuyers take advantage of affordable housing conditions before the tax credit expires."
Specifically, Yun is projecting that an additional 900,000 first-time buyers will qualify for the extended tax credit, in addition to about 2 million who have already purchased homes. NAR expects 1.5 million repeat buyers to benefit from the credit, he said.
There are two ways to look at the November data: Pessimists will argue that the figures demonstrate that the federal homebuyer tax credit had artificially boosted demand. Conversely, optimists will argue the program worked, and now that Congress has extended it, sales should rebound heading in to the spring.
It does seem clear that the federal tax credit has moved some sales forward -- that is, it has encouraged some citizens to buy homes that they wouldn't have without the credit. However, the housing sector has endured such a slump that it benefits from all the buyer demand it can get -- organic, tax-credit induced or otherwise. If the tax credits can sustain the housing market until it can thrive again without them, it will be seen as a big success. It comes down to what economic outcomes Congress wants to encourage. If it believes homeownership benefits society long-term, the federal tax credit represents a prudent program.