April's Home Sales Jump on Tax Credit. Will Congress Renew It?
Or should politicians stand pat, confident that likely monthly employment gains and other organic demand will be enough to keep residential sales headed higher?
It doesn't look like there's enough political support currently on Capitol Hill to extend the credit, but if its sales impact in April carried the day, the measure would probably speed through Congress faster than one can say "Proclamation Recognizing Mother's Day."
New-home sales surged to a 504,000 unit, seasonally adjusted annual pace in April, an increase of nearly 15% and well above the Bloomberg survey estimate of a 3.4% increase to a 425,000 unit annual pace. Sales are now up 47.8% from the same month last year, when they totaled 341,000.
April's sales jump was nearly nationwide: Sales skyrocketed 31.6% in the Midwest, surged 21.7% in the West, and increased 10.8% in the South. Sales were flat in the Northeast.
Equally significant, inventories fell to a five-month supply in April, down from a 6.7-month supply in March. The U.S. median home price was $198,400 in April, down 9.5% from a year ago.
Deadline Spikes -- Twice
What's more, the sales trend has risen and fallen roughly in sync with the home-buyer tax credit.
The first program, an $8,000 tax credit for first-time home buyers, ended Oct. 30, 2009, and a decent uptrend, a 16.8% rise, can be seen from January, 2009, when sales totaled a 339,000 unit annual pace, to Oct. 30, 2009, when it hit 396,000. Sales then retrenched over the next few months, which suggests that a rush to take advantage of the program before it expired probably contributed to the earlier, higher figure.
Congress then renewed and expanded the program in November, 2009 -- to $8,000 for first-time buyers and $6,500 for repeat buyers -- for contracts signed by Apr. 30, 2010, with the stipulation that these transactions must close by June 30, 2010, to qualify for the credit.
Next, after three months of nearly flat new home sales -- a lull in which weather likely played a role as winter historically is a period of lower transactions -- the new uptrend resumed in early 2010. Sales surged 29.8% in March, in addition to April's 14.8% jump.
Looking to Job Growth
Still, correlation does not guarantee causation, and other factors besides a tax incentive can affect a decision to buy a home, including availability of affordable mortgages, suitable housing stock, job security, the economy's health and distance from work or schools, among other factors.
But with new-home as well as existing-home sales moving in sync with the home-buyer credit deadline, it's reasonably safe to conclude that the program increased purchases and boosted economic activity in the housing sector.
If the current political calculus in Congress against renewing the credit doesn't change, economists and business executives can only hope that 'the great American job-creation machine' is back in gear and strong enough to keep home sales headed higher in the quarters and years ahead.