Fed Tax Credits Lead to Boost in Home Sales

By: Timothy McFarlin | Published: June 8th, 2010 | Category: Tax Planning

The National Association of realtors said recently the seasonally adjusted index of sales agreements for pre-occupied homes jumped 6% in April, from March, to a reading of 110.9.

Evidently, the jump has been attributed to homebuyers looking to meet a deadline to qualify for a federal tax credit. Not since October of last year, has such a high level of signed sales been seen. The biggest increase for pending sales appeared in the Northeast, where sales jumped close to 30%. Sales rose 7.5% on the West coast and about 4 percent in the Midwest. However, pending sales dropped slightly, 0.6%, in the South.

The increase in sales was the third consecutive month of increases—mostly aided by federal tax credits equaling up to $8,000. Tax credits expired April 30th and because of this, analysts project another drop within the next few months. Despite recent drops in mortgage rates and home prices, buyers are wary to buy a home if unemployed or feel their present jobs are in danger.

Economist, Paul Dales, of Capital Economics said, “clearly, the race to meet the tax credit deadline has left the home-buying pipeline rather empty, and we fear that still high unemployment, heavy indebtedness and tight credit will mean that it stays that way.”

Recently, the Mortgage Bankers Association shared their weekly report regarding applications to purchase homes. These applications fell for the fourth consecutive week to its lowest level since April of 1997.

There are a few analysts such as Ian Shepherdson, chief economist from High Frequency Economics, who see light at the end of the tunnel and the good in April’s numbers. He wrote recently he expects, “a gentle recovery once the plunge following the end of the tax credit is over.”

Congress implemented a temporary tax credit, in effort to boost home sales and revive the housing market. This was a part of the $787 billion stimulus package once President Barack Obama took office. After heavy lobbying by the real estate industry, lawmakers extended the stimulus and expanded it to more buyers.

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