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New-home sales jump 48%; tax credit cited

New-home sales soared in April to levels not seen since before 2008's financial meltdown, but the expiring federal tax credit might be just part of the surge, industry experts say.

New-home sales soared in April to levels not seen since before 2008's financial meltdown, but the expiring federal tax credit might be just part of the surge, industry experts say.

Whatever the reason, the Commerce Department reported Wednesday that sales of new homes climbed a whopping 47.8 percent above April 2009, and were 14.8 percent higher than its revised rate for March.

Although there are no regional sales data available, many Philadelphia-area builders reported that they, too, benefited from the tax credit, adding their own incentives to bring buyers in.

The now-expired federal tax credit offered as much as $8,000 to qualified first-time buyers and a maximum of $6,500 to people who had not purchased a primary residence in the last five years.

Sales agreements on purchases were due April 30. Closings must be completed by June 30.

Economist Mark Zandi of Moody's, of West Chester, said the credit "juiced up" sales as much as 125,000 new homes.

"That is, new-home sales would have been closer to 375,000 if not for the credit," he said, instead of the 504,000-unit seasonally adjusted rate.

IHS Global Insight Inc. economist Patrick Newport, however, said the effect of the credit on sales was impossible to gauge, adding that some of the surge might be "related to an improving economy."

Newport said 25 percent of new homes sold in April had not been started, and 30 percent more were under construction. Many will not be completed in time for the credit.

This "is a sign that many new homes are being bought by people who want to live in new homes, not by individuals looking to take advantage of a tax credit," he said.

Area builders saw benefits.

"We took aggressive action to inform our prospects about the tax credit, and agreed to at least double them for buyers in April," said Marshal Granor, principal in Granor Price Homes, of Horsham.

As a result, "our sales had a very nice uptick - for April only. May has been extremely slow; almost no serious buyers are stopping in, in spite of our continuation of giving $6,500 or $8,000 credit to our buyers" in both months.

On the other side of the Delaware, however, South Jersey builder Bruce Paparone said May "is shaping up to be a good month, inasmuch as March and April were."

"Of course, it is contingent on a few more contract signings for this week, if the appointments hold," he added.

Was it the credit?

"Many buyers jumped in before the deadline," said Wayne Norris, Philadelphia-area regional sales director for Hanley Wood Marketing Intelligence, of Washington. "What we do not know yet is whether these buyers were planning to buy anyway and moved up their date."

The real benefit for builders, at least long-term, is that many people who had been unable to sell their houses did so because of the credit, Norris said.

This means they are now in a better position to buy a new home, he said.

And although new-home sales were up, prices for new and existing homes fell 1.1 percent nationally in the last four quarters, Freddie Mac said Wednesday in a separate report.

Its Conventional Mortgage Home Price Index covers homes purchased with conventional mortgages. In the Mid-Atlantic region, however, prices rose 1 percent.

Last month's sales surge help reduce new-home inventory to five months' supply, or 211,000 units, the lowest level since October 1968, said David Crowe, chief economist of the National Association of Homebuilders.

"The surge of buying activity we have seen in the final two months of the tax-credit program has helped builders work down their standing inventories to near historic lows," Crowe said.

The report did contain what Newport called "one real statistical eyesore": The median time to sell a house was 14.3 months, three times what it takes normally.

Economists say they believe the next few months will be slow - payback for the credit.

Mortgage applications have slowed, falling this week to 13-year lows, said Michael Fratantoni of the Mortgage Bankers Association.

Still, "once housing demand picks up in earnest, housing construction will follow quickly," Zandi said. "With an improving job market and continued low mortgage rates, demand and construction should revive by year's end and certainly by this time next year."