Purchases of existing homes in the U.S. rose to the highest level in more than two years in September, as first-time homebuyers hurried to cash in on a government tax credit before it expires in November.
Sales of previously owned homes exceeded forecasts, surging 9.4% to an annual rate of 5.57 million units. It was the highest rate since July 2007, and followed a 5.09 annual rate in August, the National Association of Realtors said Friday in Washington.
Analysts polled by Reuters had expected September sales to rise to a 5.35 million unit pace from the previously reported 5.10 million units in August.
Most analysts attributed the increase to a federal tax credit of $8,000 for first-time buyers, which is due to expire Nov. 30. But the stampede to beat the deadline also raises the potential for a slowdown in sales during the upcoming winter months.
"The rush to take advantage of the tax credit is obviously pushing up sales," Michael Gregory, a senior economist at BMO Capital Markets in Toronto, who forecast sales would rise to a 5.5 million pace, told Bloomberg News. "Although this is going to be temporary, it does absorb some excess supply and helps bring the market into balance going forward."
As Congress tries to decide whether to extend the credit, depressed prices and record low mortgage rates have also factored into stabilizing the housing market, which has been suffering through the worst meltdown since the Great Depression.
Median prices fell to $174,900, down 8.5% from September 2008, the smallest decrease in 13 months. The number of previously owned homes on the market also fell 7.5% to 3.63 million in September.
The inventory of homes on the market would sell in 7.8 months at the current sales rate, the lowest level since March 2007. That's near the seven months supply level signaling that market prices have stabilized, NAR chief economist Lawrence Yun said recently.
The share of homes sold as foreclosures or otherwise distressed properties was 29% in September, down from 31% in August, Yun told Bloomberg.
September's sales were "heavily dependent" on the tax credit, Yun said at a press conference.
Lawmakers are debating whether the tax credit should be extended as the NAR and the National Association of Home Builders are lobbying them about concerns that sales will drop after it expires.
"The work of stabilizing the housing market won't be done" when the credit expires next month, Senate Banking Committee Chairman Christopher Dodd, D-CT, said during a panel hearing. "We still need to use every tool at our disposal to fix this problem."
Dodd and U.S. Sen. Johnny Isakson, R-GA, a former real estate agent, are pushing to extend the credit through next June.
It's unclear whether their efforts will be affected by a Treasury Department report cited by The New York Times last week that the Internal Revenue Service has identified 167 suspected criminal schemes and almost 107,000 civil violations of the credit through September.
While some of the suspected abuses of the popular $8,000 credit may be simple errors, some were not – such as claims for children as young as 4 years old, government officials said.
But homebuilders and other housing-related companies insist an extension is critical to a recovery.
"The residential housing market appears to have stabilized, but it has done so at a very low level," USG Corp. (NYSE: USG) Chief Executive Officer William Foote said Oct. 21 on a conference call.
USG is North America's largest maker of gypsum wallboard, and has rung up a string of 8 straight quarterly losses as sales plummeted 32% from last year in the latest quarter.
News & Related Story Links:
Existing home sales rebound to 2-year high
Existing Home Sales in U.S. Jump More Than Forecast
- New York Times:
Home Tax Credit Audit Shows Abuses