Money Matters - Simplified

Pending home sales surge 6% in April

As the home buyer tax rebate program, which offered $8,000 tax credit for first time buyers and $6,500 tax credit for repeat home buyers, ended on April 30, the housing market saw a surge in the number of people buying homes in April.

Benefiting from federal tax credit and recovering housing market, pending home sales in the nation surged by 6 percent in April, according to a report released by National Association of Realtors, North America's largest trade association.

The pending home sales index, representing the number of houses placed under contracts, rose to 110.9 from 104.6 in March. Further, it jumped 22.4 percent compared to pending homes sales in the same period a year earlier.

Explaining the high sales
Home sales increased largely due to the pending expiration of tax credit for the home buyers.

As the home buyer tax rebate program, which offered $8,000 tax credit for first time buyers and $6,500 tax credit for repeat home buyers, ended on April 30, the housing market saw a surge in the number of people buying homes in April.

The tax credit brought nearly 1 million additional buyers to the market, leading to significant improvement in the inventory situation.

Lawrence Yun, chief economist and senior vice president of research, National Association of Realtors, said, “There were concerns that only a small pool of buyers were left to take advantage of the tax credit extension. But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales.”

Massachusetts home sales slip
With the tax credit program expired, pending home sales boom seems to be receding.

For instance, Massachusetts Association of Realtors released data stating that pending home sales slipped in Massachusetts in May.

The single family home sales dropped 3 percent to 4,663 compared to May 2009. Further, sales of condominium plunged 6 percent to 1,894.

Though pending home sales in Massachusetts have declined in May, some analysts believe that nationwide surge is likely to continue for a few more months.

It seems that the potential buyers no more feel the urge to buy homes following the end of federal tax credit program by the Obama administration.

How long will the surge last?
Though pending home sales in Massachusetts have declined in May, some analysts believe that nationwide surge in home sales is likely to continue for a few more months.

The tax credit program has ended, but it will take at least two months to close deals at the settlement table.

“The recent housing cycle has brought long delays related to the short sales approval process by banks, and from ongoing appraisal issues. There could be a sizable number of homebuyers who responded to tax credit incentives, but may encounter problems meeting the settlement deadline by June 30," added Yun.

Also, May, which is the onset of spring home buying season, will see rise in home sales.

Home sales, which will remain elevated for the early summers, will eventually decline.

The fall is expected to last for a few months before the markets pick up completely, Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit told BusinessWeek.