Existing Home Purchases Drop Sharply

By:: Peter King | January 05, 2010

Pending home sales fell sharply in November, breaking a string of nine consecutive monthly increases, according to figures released today by the National Association of Realtors (NAR).

Pending sales dropped by a seasonally adjusted 16 percent in November, which the NAR attributed to the scheduled end of a first-time homebuyer tax credit at the end of the month. That credit was subsequently extended to April 30, but had little effect on November sales due to the lead time involved in buying a home.

Despite the sharp decline, home sales remained 15.5 percent above the November 2008 level, due to steady sales gains through most of 2009.

The drop in sales was expected, according to Lawrence Yun, chief economist for NAR. He predicted sales would remain soft the next couple months before the effects of the extended credit and a new credit for repeat homeowners will be seen.

“It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit,” he said. “The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.”

Yun predicted that an additional 900,000 first-time buyers will take advantage of the $8,000 tax credit before it expires April 30, on top of an estimated 2 million who have already bought their first home with the help of the credit. He also predicted that another 1.5 million home purchasers will take advantage of the new $6,500 credit for repeat buyers before it expires on April 30 as well.

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