The home buyer tax credit is now clearly in the rear view mirror. The National Association of Realtors (NAR) release of existing home sales shows a sharp downturn in July, falling 27.2% to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million units in June. A decline of this magnitude was predicted by pending home sales, a leading index based on contracts signed, falling 30% in May. The existing home sales numbers are based on closings and not signed contracts.
To qualify for the tax credit a home buyer must have signed a binding contract on or before April 30, 2010 and completed the sale on or before September 30, 2010. Closing typically occurs one to two months after the contract is signed, so some April sales were closing in May and June. However, the NAR noted recently that average closing period has increased in recent months due to the large volume of short sales and foreclosures in the market and the more thorough loan underwriting process. In recognition of this, the closing date for contract signed under the home buyer tax credit was extended from June 30 to September 30.
Unfortunately, with slowing economic growth in the second quarter, the boost to existing home sales provided by the home buyer tax credit could not be sustained in July. The economy is expected to remain weak in the third quarter and unemployment will remain high. Therefore, existing home sales are expected to remain soft in August and September. However, with economic growth back on track in the fourth quarter of 2010, existing home sales are expected to recover much of the ground lost in the third quarter.
The rate of decline in July was consistent across the sectors and regions. Single family home sales were down 27.1% to 3.37 million and condominium and coop sales were down 28.1% to 460 thousand. Regionally, home sales were down 29.5% in the Northeast, 35% in the Midwest, 22.6% in the South and 25% in the West.