Tax credit assisting new home market…finally

Those who want to take advantage of the government’s generosity – $8,000 for first-time home buyers and $6,500 for a repeat buyer – must act quickly to find that perfect house, as a contract must be in place by the end of the month.

Thus far, potential buyers have been reluctant to purchase a home, even with mortgage rates near historically low levels because concerns about the housing market and still-high unemployment have kept many on the sidelines.

But based on the latest data, builders are finally starting to see the benefits of the government’s effort to stimulate a critical sector of the economy.

First, housing starts increased a minor 1.6% to 626,000 annual units in March.  But the latest rise puts starts at 20.6% above last year’s very depressed level.

More importantly, builder permits, which provide a glimpse of what will happen in the near term, increased a solid 7.5% to 685,000 units, suggesting that buyers are finally beginning to take advantage of the funds offered via tax credits.  Permits are now up in five of the past six months.

Additionally, the Housing Market Index, which looks at builder sentiment, increased from 15 in March to 19 in April.  Despite modest gains in confidence from extremely low levels a year ago, the index is still far from 50 – a level which indicates  builders are neither optimistic nor pessimistic.

"Home builders reported some real improvement in current sales activity and traffic of prospective buyers through their model homes over the past month," said National Association of Homebuilder Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan.

"While we remain cautious about what future months will bring, it's great to have this positive momentum at the start of the spring home buying season."

The tax incentives are a big factor is prompting potential buyers to move off the sidelines.   Builders, however, remain cautious, as foreclosures of late-model  homes are still hanging over the market.  And the expiration of the tax credit seems likely to depress demand, at least temporarily.