Majestic Research

The Wall Street Journal

The Home-Buyer Tax Credit May Have Actually Worked

By Nick Timiraos
Published: May 27, 2010

Did the last round of the home-buyer tax credit have a bigger impact than analysts had previously anticipated?

When it comes to new home sales, the answer may be yes.

Consider that U.S. existing home sales ran at an estimated seasonally adjusted rate of 5.77 million in April, up 7.6% from March’s pace. Meanwhile, Commerce Department estimates of new single-family home sales ran at a seasonally adjusted rate of 504,000 last month, up 14.8% from March.

“The incoming data suggest that contrary to conventional wisdom, the latest home-buyer tax credit, and its expiration, may have goosed sales just as much as last year’s tax credit,” writes Thomas Lawler, an independent housing economist in Leesburg, Va.

Mr. Lawler notes that new home sales may have done better during this spring’s rush to beat the expiration of a tax credit because builders had a longer lead time. Also, when the tax credit had been set to expire last fall, many people believed it might be extended. That wasn’t the case this time.

Already, there are clear signs that demand was pulled forward from the late spring and summer into March and April. New-purchase applications for mortgages are down 27% over the past four weeks, even though mortgage rates are down from around 5.25% to 4.8%.  “It will be only a matter of months before a double-dip in the housing market starts to act as a modest drag on economic activity,” writes Paul Dales, U.S. economist at Capital Economics.

If the tax credit worked in changing buyer psychology, it may have also had the same effect on potential sellers. Will more buyers who have held back their homes put them on the market now that there are more signs of stabilization?

Demir Gjokaj, a senior homebuilding analyst at Majestic Research, says that there were signs of a last-minute surge in existing home listings in late April, as the tax credit expiry neared, particularly for higher-priced homes.