Majestic Research

The New York Times

Sales of Existing Homes Are Aided by Tax Credit

By CHRISTINE HAUSER and JAVIER C. HERNANDEZ
Published: April 22, 2010

Sales of existing homes rose sharply in March, an indication that a government tax credit was luring buyers to the market.

Sales were up 6.8 percent from February to an annual rate of 5.35 million, according to a report by the National Association of Realtors. Analysts had expected a 5.3 percent increase.

The association said the results suggested the beginning of a spring surge as buyers moved to take advantage of a tax credit of up to $8,000 that expires April 30.

“The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices,” the chief economist for the association, Lawrence Yun, said.

Sales have been propped up recently by the appeal of the tax credit, low mortgage rates and perceptions of a slowly improving economy. But analysts expect home buying to slow in the months ahead.

“The tax credit is compressing the purchasing into a narrow time span,” said Steven Blitz, a senior economist for Majestic Research. “The big question is what happens after April. We know sales will go back down again.”

But prices have remained steady in recent months, kept lower by weak demand and an influx of bargain-priced foreclosures. A report released Thursday by the Federal Housing Finance Agency showed that home prices fell 0.2 percent in February from January.

A third report on Thursday showed wholesale prices climbed 0.7 percent in March, largely because of a jump in food prices. But a closely watched gauge of inflationremained unchanged, signaling interest rates may remain low for some time.

The Labor Department said food prices rose for a sixth month, increasing 2.4 percent, primarily because of a 49.3 percent surge in vegetable prices. Those prices tend to be volatile, and a separate measure that excludes food and energy prices climbed 0.1 percent.

Economists said the jump in food prices was probably a one-month aberration.

“It is hard to believe that this type of gain in food prices will repeat,” said Dan Greenhaus, chief economic strategist for Miller Tabak & Company, an investment firm, who characterized the overall report as “benign.”

Mr. Greenhaus said the increase in food prices was the largest since 1984.

Despite the rise in food prices, which analysts attributed to a cold weather snap in agricultural regions, the year-over-year core index remained steady — in line with expectations — and analysts said prices would probably remain steady.

“In a blink of an eye it will be gone,” said Joshua Shapiro, chief United States economist for MFR, a consulting firm. “It is not going to leak into core inflation. You are seeing other prices going down. ”

While food prices have steadily increased, the March data was not expected to reverse the Federal Reserve’s outlook for relatively low levels of inflation for the foreseeable future.

The Fed’s policy-setting committee will meet next week but it is not expected to raise interest rates until the second half of this year at the earliest.

The Fed has kept interest rates low to stimulate growth amid widespread unemployment and an unsteady recovery.

Wholesale prices had been increasing since October until they dipped 0.6 percent in February. In March, food prices contributed to more than 70 percent of the index’s rise but it was also bolstered by a 0.7 percent increase in prices for energy, the index showed.