Tax Credit Leads to increase in U.S. Home Sales
U.S. home sales increased 14 percent in the fourth quarter as a Federal Reserve program to purchase mortgage bonds and a tax credit for property buyers boosted demand for real estate.
Sales of existing single-family homes, condominiums and cooperatively owned apartments rose to 6.03 million at an annualized, seasonally adjusted, rate from 5.29 million in the previous quarter, the National Association of Realtors said in a report today. The median price fell 4.1 percent from a year earlier, dropping in about half of U.S. cities, the Chicago- based trade group said.
Government stimulus programs including the Fed’s effort to lower home-loan rates by purchasing mortgage bonds lifted the real estate market in the closing months of 2009, said Stan Humphries, chief economist at Zillow.com in Seattle. A “double dip” in home prices is possible after the Fed’s program ends in March and the tax credit expires at the end of April, he said.
“What we’re seeing playing out in the marketplace is really a battle between market fundamentals on the one hand and market intervention, primarily in the form of federal policy support, on the other hand,” Humphries said.
President Barack Obama in early November extended the tax credit beyond its original Nov. 30 deadline. The new version keeps the $8,000 first-time homebuyer benefit and makes a smaller credit available to some move-up buyers. To qualify, people must have a signed contract on a property by the end of April and purchase it before July 1.
Record Mortgage Rates
The Fed began purchasing $1.25 trillion of bonds backed by home loans last year in an effort to drive down fixed mortgage rates. The rate dropped to an all-time low of 4.71 percent during the first week of December, according to McLean, Virginia-based Freddie Mac. This week it is 4.97 percent. The Fed’s program is set to end this quarter.
Home sales rose 4.9 percent last year to 5.16 million, the first annual gain since 2005, the National Association of Realtors said in a Jan. 25 report. In 2011, sales may increase 9.9 percent, the trade group said.
U.S. home prices fell 12 percent in 2009 to a median of $173,500, a greater decline than 2008’s 9.5 percent drop. This year, prices may rise 3.7 percent, the first gain since 2006, according to a forecast on the trade group’s Web site.
The U.S. median home price tumbled 28 percent over three years to a seven-year low of $164,800 in January 2009, the month before Congress passed the American Recovery and Reinvestment Act authorizing the tax credit, according to the NAR. The median had reached a record high of $230,300 in July 2006.