The pending home sales index came out today and it picked up 8% in February, returning to a level last seen in the summer of 2009 when the previous version of the tax credit was in effect.

The 2010 version of the credit has taken longer to show any buyer urgency but the rise does provide evidence that home buyers are aware of the April 30 deadline for a contract signing.  If the pattern repeats itself in 2010 as it did in 2009, then the index should see another significant bump in March but then settle down as the deadline passes and some of the time-shifting in sales softens contract signing in late spring and early summer.

The 2010 version of the tax credit, which extended the first time home buyer $8,000 and expanding the credit to many repeat buyers with a $6,500 credit, has so far not had the same impact on home sales as did the 2009 version.  I see a couple of reasons.

First, the 2009 version did move some sales into 2009 at the cost of sales now.  However, I remain convinced that there are more potential sales now as the economy begins to heal, mortgage rates remain very low and house price appear to have stabilized in many markets.

Second, stiff competition for starter homes remains and first time home buyers may have difficulty competing with investors and all cash buyers for a limited number of homes on the market in their price range.

Third, the 2009 version did not have much of an impact on repeat buyers buying a newly built home even if they were able to sell their existing home to a first time buyer.  That was probably because many bought existing homes or stayed out of the market.  The 2010 version has only a relatively small tax incentive given continued consumer attitudes toward the overall economy.

Third, while house price declines have stopped and actually increased in most indexes, home equity did fall for many current home owners and their plans for the next home may have to be altered by either buying something less expensive or waiting for values to exceed the mortgage balance.

I do expect to see an increase in sales before the credit deadline of April 30 for a contract and June 30 for a completed sale.