Published: Tuesday, November 24, 2009
Tax credit sparks home sales
WASHINGTON — First-time buyers seized on a tax credit, combined with low mortgage rates and falling prices, to boost home sales in October to their highest level in 2½ years.
Home sales are now nearly 37 percent above their bottom in January, though still 16 percent below their peak in 2005. At the current sales pace, there’s a modest seven-month supply for sale. Bidding wars are occurring in some areas.
Analysts, though, said the gains mainly reflected the homebuyer tax credit, which had been due to expire on Nov. 30. Earlier this month, Congress voted to extend it until spring — and expanded it to more buyers.
The report Monday from the National Association of Realtors pleased investors on Wall Street. Analysts said the homebuyer tax credit will help sustain the housing market next year.
Yet the overall economy is likely to benefit only slightly from higher home sales.
Too many factors are weighing on the fledgling recovery. Home construction is weak. Foreclosures are rising. Job creation is slow. And consumers remain reluctant to spend.
Though housing is contributing to growth, other parts of the economy must turn around if the recovery is to gain strength, analysts said.
Residential spending has gone from being a drag on the overall economy to a positive force, but “I wouldn’t want to bet the house on housing, really, in terms of the strength of the U.S. economy going forward,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.
The Realtors group said resales rose 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October, from a downwardly revised pace of 5.54 million in September. It was the biggest monthly increase in a decade, and far above the 5.65 million pace economists expected, according to Thomson Reuters.
“People who are looking, they are serious,” said Harrison Tulloss, an agent with ZipRealty Inc. in the Raleigh-Durham area of North Carolina. “They’re not riding around with me if they need to go shopping or buy a turkey.”
Investors seized on the better-than-expected home sales, along with a falling dollar, to snap up stocks.
The Dow Jones industrial average and other stock indexes rose more than 1 percent in mid-afternoon trading.
Home sales are now nearly 37 percent above their bottom in January, though still 16 percent below their peak in 2005. At the current sales pace, there’s a modest seven-month supply for sale. Bidding wars are occurring in some areas.
Analysts, though, said the gains mainly reflected the homebuyer tax credit, which had been due to expire on Nov. 30. Earlier this month, Congress voted to extend it until spring — and expanded it to more buyers.
The report Monday from the National Association of Realtors pleased investors on Wall Street. Analysts said the homebuyer tax credit will help sustain the housing market next year.
Yet the overall economy is likely to benefit only slightly from higher home sales.
Too many factors are weighing on the fledgling recovery. Home construction is weak. Foreclosures are rising. Job creation is slow. And consumers remain reluctant to spend.
Though housing is contributing to growth, other parts of the economy must turn around if the recovery is to gain strength, analysts said.
Residential spending has gone from being a drag on the overall economy to a positive force, but “I wouldn’t want to bet the house on housing, really, in terms of the strength of the U.S. economy going forward,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.
The Realtors group said resales rose 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October, from a downwardly revised pace of 5.54 million in September. It was the biggest monthly increase in a decade, and far above the 5.65 million pace economists expected, according to Thomson Reuters.
“People who are looking, they are serious,” said Harrison Tulloss, an agent with ZipRealty Inc. in the Raleigh-Durham area of North Carolina. “They’re not riding around with me if they need to go shopping or buy a turkey.”
Investors seized on the better-than-expected home sales, along with a falling dollar, to snap up stocks.
The Dow Jones industrial average and other stock indexes rose more than 1 percent in mid-afternoon trading.
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