Ending of First-time Home Buyer Tax Credit Affecting New Home Sales Slowdown, Says NAHB

Residential News » Residential Real Estate Edition | By Michael Gerrity | October 28, 2009 2:40 PM ET

(WASHINGTON, D.C.) -- After five consecutive months of increases, sales of newly built, single-family homes fell 3.6 percent to a seasonally adjusted annual rate of 402,000 units in September, according to data released by the U.S. Commerce Department today.

"This critical loss of momentum corresponds with the ending of the $8,000 first-time home buyer tax credit, since for the most part, September was too late to sign a deal that could be completed by the time the credit expires at the end of November," said Joe Robson, chairman of the National Association of Home Builders (NAHB) and a home builder from Tulsa, Okla. "The fact that sales are now heading downward just shows how important the tax credit has been for stimulating buyer demand up to this point, and how essential it is for Congress to move quickly on legislation that would extend the credit's expiration date and expand its eligibility to more buyers. Doing so would keep the housing market on the road to recovery while stimulating much-needed job growth across the economy."

Robson noted that extending the tax credit's effective date for one year and expanding it to include all home buyers would generate nearly 350,000 jobs, $28.2 billion in wages, salaries and business income, and $11.6 billion in additional tax revenues.

"The fact that this is the first time in five months that sales have declined indicates that the tax credit's impending expiration is already having a negative effect on housing demand," said NAHB Chief Economist David Crowe. "Given the crucial importance of housing to the national economy and the fragile state of the nascent recovery, extending and expanding the credit should be a top priority for Congress. Home builders are already doing what they should by keeping a lid on supplies of new homes, but the combined threat of the credit's expiration and the poor job market make the likelihood of improving home sales extremely remote."

The inventory of new homes on the market continued downward for a 29th consecutive month, to 251,000 units in September. This is the lowest inventory since November 1982. However, the slower pace of sales kept the months' supply unchanged, at 7.5.

Crowe noted that the Midwest, which unlike all other regions posted a significant gain in September home sales, was one area where buyers still had a last-minute opportunity to sign a deal in time to take advantage of the tax credit because of the lesser volume of sales in the pipeline.

On a regional basis, new-home sales were down 10 percent in the South, which is the nation's largest housing market, and were down 10.6 percent in the West. The sales rate did not change in the Northeast in September, but gained 34 percent in the Midwest due to last-minute deals sparked by the tax credit.

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