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Homebuyer tax credit ends, home sales plummet: What's next?

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A couple of interesting items on the Wall Street Journal’s “Developments” blog delve into recent data showing a huge drop in home sales based on last month’s data and what impact — positive or negative — the $8,000 homebuyer tax credit might have had.

The first piece explores whether the tax credit might have been a mistake:

Clearly, temporary tax credits succeeded in getting buyers to change their behavior. But once the tax credits disappeared, so did the buyers. “Why would you have signed a contract in May and not in April when you could have gotten an $8,000 tax credit?” says John Burns, a housing consultant based in Irvine, Calif.

What’s less clear is whether stimulus has done anything else to change demand. While mortgage rates continue to fall every week into record territory, the expiration of tax credits shows that housing demand is not much better than it was 18 months ago, when the market was in freefall.

Some analysts say that even if the tax credit has simply shifted demand around, the tax credit did help to stabilize the market when the patient—the banking system, the economy, home-buyer psychology—was in the greatest need of help.

A second article examines the outlook for home builders:

This morning, the Commerce Department reported that new home sales hit their lowest-ever level in July, with just 276,000 homes expected to move in 2010, based on last month’s numbers. … So what do these record lows mean for builders? …

[M]ost analysts Wednesday were very cautious about the future, and some downright dismal about the prospect of seeing any good earnings reports next quarter. Buck Horne, an analyst with Raymond James & Associates Inc., said Toll’s balance sheet is weighed down with land assets, which will hurt their margins in the coming months. Analysts from Keefe, Bruyette & Woods Inc. predicted “a sharp slowdown in home sales over the coming months” and Ticonderoga Securities found “little to get excited about” in the new-home sales numbers.

A few analysts struck a positive note on the sector as a whole, including J.P. Morgan’s Michael Rehault, who predicted a return to profitability for the building sector by year-end.

What are you seeing in the marketplace? What’s your outlook for the coming months, years? Did the tax credit affect your business — positively or negatively? Let us know in the comments.

[chart via WSJ]