The federal homebuyer tax credit shifted demand in the U.S. housing market without having a lasting impact on prices, according to Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier.
“Temporary tax credits change behavior temporarily,” Duncan said today at a National Association of Real Estate Editors conference in Austin, Texas. “It’s simply shifted demand forward.”
To qualify for the tax credit, buyers were required to sign a contract by April 30 and complete the purchase by July 1. Housing data have shown demand may cool after the deadline. A Mortgage Bankers Association index of applications for loans to purchase properties fell last week to the lowest level since 1997. The number of homes on the market in April surged by the most in a decade, the National Association of Realtors said.
“It actually created some price appreciation that’s not supportable long term,” Duncan said of the tax credit.
The percentage of consumers surveyed who planned to buy a home in the next six months fell to 1.9 percent in May after touching a seven-month high of 2.8 percent in March, the Conference Board said last week. The New York-based group’s index of overall consumer confidence rose for three straight months as the economy expanded and the job market improved.
Prior to the expiration, sales of previously owned homes jumped 7.6 percent to a 5.77 million annual rate in April, the highest level in five months, the National Association of Realtors said May 24. The median price increased 4 percent from a year earlier.
The number of contracts to buy previously owned homes also climbed in April, the trade group said this week. The index of pending resales rose 6 percent from the prior month, reaching the highest level since October. It typically takes a month or two to close on a property after signing a contract.
Stan Humphries, chief economist at real estate data provider Zillow.com, said one in five homebuyers who used the tax credit wouldn’t have bought a home without it. Humphries said he also doesn’t expect the credit to have a permanent impact on U.S. home prices.
“We’re now forecasting a bottom in home prices in the third quarter of this year,” said Humphries, who spoke on a panel with Duncan. “We think the bottom is going to be a long and flat affair in most markets.”
New-home purchases, which account for about 10 percent of the housing market and are tabulated when a contract is signed, jumped 15 percent in April after surging 30 percent the prior month, Commerce Department figures showed last week. Permits, a sign of future construction, tumbled in April by the most since December 2008, the Commerce Department said in a May 18 report.