Thanks to a generous tax credit aimed at first-time homebuyers, sales of existing homes in April rose significantly above expectations. But with that same credit expiring at the end of April, analysts worry about a drop in sales in the months ahead.
“The government incentives to buy homes worked,” said Joel Naroff, chief economist with Naroff Economic Advisors, “but who knows where we go from here.”
The National Association of Realtors reported that sales of existing homes sales rose 7.6 percent to an annual rate of 5.8 million in April from the previous month. Compared to a year ago, home sales have increased 22.8 percent. First-time homebuyers represented nearly half of all home sales in April.
“The upswing in April existing-home sales was expected because of the tax credit inducement,” said Lawrence Yun, chief economist with the realtor trade group. He acknowledged, however, that with the tax credit ending, a drop in sales could follow in the months ahead.
As sales rose, so too did prices. The national median home prices increased to $173,100, up 3 percent compared to a year ago.
“This was a very solid report but it doesn’t really tell us what condition the housing market is in,” said Naroff. “That is because the government has interfered with the market.”
And in a troubling sign, the number of homes for sale actually rose nearly 12 percent to an 8.4 month supply. That means that at the current pace of sales, it will take that many months to sell the backlog of homes available. Economists like to see 5 to 6 months supply as a sign of a balanced market. If too many homes are for sale, prices can fall if there is not enough demand.
“Overall supply is now rising quite quickly as would-be sellers see a chance to move their property,” said Ian Shepherdson, chief U.S. economist with High Frequency Economics. “We remain nervous that this wave of supply will push prices back down in the second half of theyear.”
Even with interest rates for 30-year fixed mortgages below 5 percent, refinancing represented more than 2/3rds of the mortgage applications last week. In fact, the Mortgage Bankers Association reported that requests for mortgages to purchase homes fell 27 percent week-over-week to the lowest level since May 1997.