Tax-credit bounce evident in PA home sales

A few weeks ago, the news hit the airwaves and print media like a lead balloon: “Existing home sales plunged to their lowest level in 15 years in July … Home resales dropped a record 27.2 percent … to an annual rate of 3.83 million, the National Association of REALTORS® said.” (Wall Street Journal News Alert, August 24, 2010).  There was virtually unanimous agreement that the expiration of the $8,000 home-buyer tax credit explained much of the drop.  CNNMoney.com reported that sales were 34 percent below April’s tax incentive-induced peak. A day later, sales of new homes were reported as falling more than 12 percent.

In a widely cited interview, Paul Dales of Capital Economics noted, “Home sales were eye-wateringly weak in July.” (CNNMoney.com, August 24, 2010).  The fear that housing is hampering the general economic recovery is now widespread.  More observers worry not only about a double-dip recession but increasingly, a move toward the “D” word … (Depression).

What’s been going on in Pennsylvania? 

While we don’t have July sales data yet, we can show results for the previous several months.  At the beginning of 2010, for a majority of the reporting regions, sales activities were down, however, sales uniformly picked up in the second, third and fourth months.

For all Pennsylvania regions, there were almost 65 percent more transactions in February than during the previous month and activity continued throughout the quarter and beyond.  The monthly results in the second quarter were very strong statewide. By June, all regions had significantly higher sales (except Adams, where sales had increased earlier). 

While there is seasonality in the data coming out of winter, it is clear that Pennsylvania buyers were responding to the home-buyer tax credit during the first and second quarters of 2010. Table 2 shows the same phenomena.

What can we conclude?

Both the monthly and quarterly transaction data showed robust responses to the tax credits.  In the monthly series, all regions had very large percentage increases in February and these continued (although at a declining rate) into May. Data for June picked up in many regions, most likely stemming from seasonality and the expiring credits. The tax credit impact significantly elevated the 2009 annual results.

Most commentators predict slower third and fourth quarters in 2010 without the tax credits in place. In fact, the very recent evidence surprised most analysts by its magnitude (i.e., the sales declines were about twice what was expected).  Buyers were motivated to accelerate their purchases to qualify for the federal money and the fear was that there would be a significant decline when the tax credit sales expired. These fears have now been realized.

The next few months are being watched closely. Markets are expected to be weak (i.e., sales and prices may decline further).  Housing demand is largely absent — or at best, dormant — and inventories are large (12 months or more) and likely to grow in the months ahead.

We are in for a rough several months nationally as well as in Pennsylvania.

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Tags: sales, tax credit, transaction data

This entry was posted on Thursday, September 2nd, 2010 at 6:00 am and is filed under Economics, Industry News. You can follow any responses to this entry through the RSS 2.0 feed.