Buyer interest inspired from an expiring tax credit designed to stimulate housing market helped push the confidence of home builders to the highest level in two and a half years.
Released today, the National Association of Home Builders/Wells Fargo Housing Market Index increased from 19 in April to 22 in May, the second consecutive monthly increase and the best level since August 2007.
Obviously, buyers are reacting to the just-expired $8,000 tax credit for first time buyers and the $6,500 credit for repeat buyers. And those who recently purchased a new or existing home are getting the added bonus of very attractive financing, as the 30-year fixed mortgage has been hovering at or near 5%.
If history is any guide, we would expect a letdown following the demise of the tax credit. Following the previously-expected expiration of the credit on November 30 – before Congress extended and expanded the measure, interest in new and existing homes fell sharply, likely because the credit encouraged some purchasers to move up plans in order to take advantage of the extra cash.
However, we can find some encouragement from the expectations component of the survey, which moved ahead even as competition from foreclosures and short sales hangs over the market.
The tax credit has done the job which it was supposed to do – getting fence sitters to take action, but the remedy that is truly needed to fix the ailing housing market is an expanding economy and job growth.
Before we (or I) get too carried away with today’s report, it’s important to point out that a reading of 50 indicates builders are neither positive nor negative on the market. Though home builder confidence is improving, at 22, sentiment is still weak by historical standards.
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