July plummet coincides with federal tax credit’s expiration
LOS ANGELES – The end of a popular government stimulus program drove home sales in July to their lowest levels in more than a decade, fueling fresh concerns about the economic recovery.
Home sales fell 27.2 percent from a month earlier, a much bigger drop than expected, as the boost evaporated from a now-expired federal tax credit that had been driving sales this spring. The plunge came despite rock-bottom rates on home loans.
Concern over the summer swoon reverberated from Wall Street to the White House. The Dow Jones industrial average fell more than 1 percent, briefly falling below 10,000.
“You are seeing the sales drop off a cliff again, and that is really starting to scare people,” C.J. Jones, head of institutional trading at Nollenberger Capital Markets, said Tuesday. “Are we going to have a double dip? Nobody knows.”
White House deputy press secretary Bill Burton acknowledged that the drop-off was likely largely due to the expiration of the homebuyer tax credit and called the 27.2 percent decline a “tough number.”
“There’s a lot more work yet to do,” Burton said.
The National Association of Realtors said the seasonally adjusted annual rate of sales was 3.83 million units in July, not only a big drop from June but a 25.5 percent drop from July 2009.
It was the lowest sales level since 1999. The sales rate for single-family homes, which accounts for the bulk of sales, was at its lowest level since May 1995, the group said.
Dan Greenhaus, chief economic strategist for Miller Tabak & Co., called the July plunge “a near, if not outright, collapse in housing.”
Nigel Gault, chief U.S. economist for consultant IHS Global Insight, said the future for housing looked bleak for the rest of the year without a pickup in job growth. “The most worrying feature of the recent housing data is the absence of evidence of any underlying improvement in sales,” Gault said. “All of the action earlier this year appears to have been driven by the tax credit.”
The July plunge was the third consecutive monthly decline after the April 30 expiration of the federal tax credit, which offered up to $8,000 for certain buyers.
Many buyers who rushed to beat the April 30 deadline to sign a sales contract were closing their deals in May and June, helping to propel the market. With many of those deals now apparently closed, the market is faced with standing on its own.
Real estate experts said the tax credits led many buyers to speed up their plans to buy houses, boosting sales this spring, but sapping demand over the summer.
A few months ago, “we were getting eight or nine offers on every property, and we knew that we would have a tremendous drop-off, because it was being artificially stimulated,” said Gary K. Kruger, a real estate agent with HomeStar Real Estate Services in Hemet, Calif.
“Buyers were borrowing the money from a family member and promising to pay it back when the tax credit came through,” he said. “People still do not have cash to make a down payment.”
The worst sales drop was in the Midwest, which recorded a 35 percent decrease in sales of previously owned homes from June to July. The West fared better, with a 25 percent decline. Sales tumbled 29.5 percent in the Northeast and 22.6 percent in the South.
The one bright spot of the report was that the national median home price for all housing types was $182,600 in July, up 0.7 percent from a year ago. Sales of distressed homes – those sold out of a foreclosure or when the seller is in default – accounted for 32 percent of sales in July, unchanged from June.
But economists and professionals are increasingly predicting a difficult market for months to come.
“It’s an absolute standoff. Buyers know that time is on their side and sellers are hard up against their mortgage; they just can’t lower their price any more, so it’s hard to put deals together,” said Glenn Kerman, chief executive of the online brokerage firm Redfin.
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, is one economist who expects prices to fall this year.
“The tax credit pulled a lot of purchases forward, so people rushed to buy a home to qualify for the credit and it would have been a weak market otherwise,” Baker said. “Now we are looking at a very weak market, and obviously people have to sell, so we are probably going to see a plunge in prices through 2010.”
Total housing inventory jumped 2.5 percent at the end of July to 3.98 million homes available for sale, representing a troubling 12.5-month supply at the current pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the 4.58 million in July 2008.
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