Philadelphia-area existing-home sales down in December

The end of the first housing tax credit, as expected, took its toll on sales of existing homes in December, national and regional data show.

Sales fell about 35 percent in December from November in the eight-county Philadelphia region, according to a Prudential Fox & Roach HomExpert report.

Nationally, the month-to-month drop was 16.7 percent, according to the National Association of Realtors.

The home sales reflected in this report went to settlement in December, but sales fell off as the first deadline for the tax credit approached but the extension had not yet been announced. Sales typically are not closed until 45 to 60 days after the agreement is reached.

"The market is going through a period of swings driven by the tax credit," said NAR chief economist Lawrence Yun. "We'll likely have another surge in the spring as home buyers take advantage of the extended and expanded tax credit."

The original tax credit, which provided $8,000 for qualified first-time buyers, expired Nov. 30. Two months of wrangling in Congress over an extension continuing the $8,000 for first-timers, increasing income levels, and adding a $6,500 credit for buyers who have not bought in fewer than five years finally ended with approval of one through April 30.

The delay was enough to slow sales substantially, economists said. The Thanksgiving and Christmas holidays, sluggish even in good times, contributed to the drop.

Although the month-to-month numbers were down, existing-home sales here and elsewhere show a marked year-over-year improvement.

Accounting for the fact that the last three months of 2008 were the worst for home sales in more than 50 years - the result of the financial meltdown in September of that year - regional numbers were up 9.1 percent from December 2008, while national sales rose 15 percent.

"Clearly, the local real estate market is improving," said Prudential Fox & Roach senior vice president Steve Storti, adding that the combination of low rates and the tax-credit extension was likely to "continue this momentum into the key spring market."

The big monthly decline in Philadelphia sales demonstrates the importance that the tax credit had for sales here. Price drops of 30 to 50 percent created bargains for buyers in other regions of the country.

Philadelphia-area prices did not fall as far, so the tax credit helped create the bargains.

Some economists question whether the extended credit will jump-start the real estate market as much as the first one did.

"So far, the second credit appears to be having a minimal effect," said IHS Global Insight economist Patrick Newport.

"Mortgage applications to purchase homes [the four-week moving average] are near their lowest level since 1997," he said. "Applications are down despite the fact that mortgage rates, which are at historically low levels, are likely to go up during 2010."

Newport said he believed sales would be weaker in 2010 than in 2009.

Prices fell 3.2 percent year-over-year in the eight-county Philadelphia region, but that reflects the continued presence of first-time buyers in the market, with or without the tax credit, snapping up lower-priced homes.

National prices rose 1.5 percent, reflecting, as Yun observed, more middle- and upper-end houses in the nationwide mix.

The consensus of economists is that home prices stabilized in the second half of 2009 because of low interest rates and the tax credit.

Philadelphia economist Kevin Gillen's analysis of fourth-quarter 2009 data for the city of Philadelphia shows "a solidifying" of the market's condition.

Prices in the quarter held steady for the third consecutive quarter, said Gillen, vice president of Econsult Corp.

As a result, city home prices have fallen just 7 percent since the downturn began, he said.

"Whether the recent good news represents a true turnaround in the housing market or a temporary bottom will likely have to wait till spring," Gillen said.