Pending Home Sales Rise: The Tax Credit Effect?

Potential homebuyers rushed to sign contracts in March, pushing the Pending Home Sales Index to its highest level since last fall, according to the latest from the National Association of Realtors.

We expected that
-- the surge in pending home sales is part of a mini housing boom created by a massive federal program -- the $8,000 federal home-buyer tax credit that expires this spring.

But this mini housing boom might be over already. Demand for housing tanked the last time the home-buyer tax credit expired last fall. To take advantage of the latest tax credit, home buyers had to sign their contracts by April 30.

So if you had an open house to sell a home May 1 and nobody showed up, this might explain why....
The Pending Home Sales Index rose to 102.9 in March, up from 97.7 in February. The index measures contracts signed to buy homes -- not closing, which typically happen one or two months later. That means that even though the boomlet sparked by the tax credit may already be over (from the standpoint of someone now hoping to buy or sell), economists and pundits will still be writing about it for months.

Here's how the tax credit boosted the demand for housing last fall: The pending home sales index rose all summer from 85 in March 2009. In September, the month before the peak, the index was at 107.8. It peaked in October at 112.4. That's because homebuyers had to close on the purchase of their new home by Nov. 30 to claim the tax credit. In November, the pending home sales index crashed to 97.

All the other housing indicators, such as new and existing home sales, followed the same arc.

This time, pending home sales have been rising from their January low of 90.2. The index hit 102.9 in March and will probably peak in April, since to claim the new homebuyer tax credit homebuyers had to sign a contract by April 30 and close on the purchase by the end of June.

In May, the index is almost certain to tank again. Hopefully the high demand that comes with warm weather, along with our slowly strengthening economy, will soften the blow.

"In the months immediately following the expiration of the tax credit, we expect measurably lower sales," said Lawrence Yun, NAR chief economist. "Later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace."

The pending home sales index for May won't come out till July, but we'll watch advance indicators, like the number of mortgage applications, to see how this potential mini housing bust develops.

In the meantime, if you're trying to buy or sell a home, how has the home-buyer tax credit affected your purchase? Add your comment below.

Pending Home Sales Index, with no Seasonal Adjustment

March 2010 - 102.9
February 2010 - 97.7
January 2010 - 90.2
December 2009 - 97.8
November 2009 - 97.0
October 2009 - 112.4
September 2009 - 107.8
August 2009 - 103.0
July 2009 - 98.1
June 2009 - 93.0
May 2009 - 92.3
April 2009 - 90.6
March 2009 - 85.0
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