Tax Credit Fuels Rise in Home Sales
By Conor Dougherty and John D. McKinnon
The Wall Street Journal
October 24, 2009
Sales of existing homes surged 9.4% in September to a seasonally adjusted annual rate of 5.57 million units, as lower prices and the looming expiration of a federal tax credit lured more buyers into the market.
The data, released Friday by the National Association of Realtors, portrayed a housing market that continues to stabilize across the country and gives ammunition to those trying to extend the $8,000 tax credit for first-time home buyers.
Prospects for extending the credit remain mixed. On Capitol Hill, there are deep concerns about the program's cost. While many lawmakers support some form of extension, they want the credit's substantial cost to be offset by tax increases or spending cuts.
Extending the current credit would cost about $1 billion a month, according to congressional estimates. Some lawmakers are backing an expanded credit that would last through June and cost about $16.7 billion.
Senate Majority Leader Harry Reid of Nevada has been trying to reach an agreement for a 13-month extension that would provide up to the full $8,000 for four months, and gradually reduce the credit's value over the remainder of 2010.
Aides say Mr. Reid aims to have a vote on the measure as part of next week's debate over extending federal unemployment insurance benefits. The package also is likely to include bigger tax refunds for businesses that have suffered operating losses during the downturn.
The new sales data could help backers of the credit, scheduled to expire Nov. 30. But the improvement also could undercut a key argument of backers -- that the recovery remains fragile enough to require an extension. It also doesn't alleviate concerns the credit has been subject to widespread abuse, as the Internal Revenue Service pursues more than 100,000 suspected improper claims.
Existing homes sales were up across the country, the NAR reported. The median price of an existing home has fallen 8.5% year-over-year, but prices have stabilized from their free-fall during the worst months of the recession.
The spike in demand reduced housing inventories to a two-year low. Housing inventory was down 7.5% to 3.63 million homes in September, reducing the nation's housing supply to 7.8 months from 9.3 months in August, assuming the current sales pace.
The housing market is still in rough shape: The supply of homes is still about three months bigger than normal, and distressed sales, such as foreclosure auctions, continue to drag down prices. But many analysts say the broad rebound in sales shows the market is being driven by more than first-time buyers lured by the tax credit.
Sam Khater, senior economist for First American CoreLogic Inc., said sales would likely decline only marginally if the tax credit were allowed to expire. He argued that other programs of the Federal Reserve and Federal Housing Administration have played a larger role in luring buyers.
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