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- iHaveNet.com: Economy
by Luke Mullins
Americans signed far fewer contracts to buy homes than expected in May, the real estate market's first month of functioning without a key federal stimulus.
The Pending Home Sales Index, which measures sales contract signings, fell 30 percent in May from April to a new record low, the
"If you're looking for a silver lining in housing, you aren't going to find it here," Mike Larson of
The federal home buyer tax credit was enacted by President Obama in early 2009 in an effort to revive the struggling real estate market. The initiative offered up to $8,000 in tax breaks to qualified home buyers who signed a sales contract by April 30 and closed the transaction by the end of June. As a result, the pending home sales index increased in the three months through April as buyers pushed up transactions that would have otherwise taken place in later months in order to get their hands on the credit. This pull-forward effect, however, worked to undercut housing demand in the weeks immediately following the deadline.
"We now expect the index to remain close to the May level for a couple of months before a gradual rebound begins in the fall," Ian Shepherdson, chief U.S. economist at
Zach Pandl, an economist at
But Pandl says the timing of the decline may be altered by new legislation. Late Wednesday, the
"We now have clear evidence that existing home sales are going to fall, it's just a question of when," Pandl says.
Tax credits aside, today's home buyers still have plenty of incentives to jump into the market. Real estate prices have fallen sharply from the heights reached during the housing boom. Meanwhile, 30-year fixed mortgage rates fell to 4.58 percent for the week ending July 1.
But with the unemployment rate still just below 10 percent, the labor market remains a key obstacle to the reformulation of housing demand, Larson says.
"The overall economy is rolling over, consumer confidence is slumping and, most importantly, we just aren't creating jobs," he said in a report. "With so many Americans unemployed or underemployed, the housing market is going to keep hurting."
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Home Sales Poised to Drop in Coming Months