Monday, October 26, 2009

Which Way for Housing?

Last week we mentioned that there was a fresh round of home-sales figures due at the end of the week. And it turned out to be doozy: Purchases of existing homes in the U.S. rose to their highest level in more than two years in September. Sales surged 9.4 percent to an annual rate of 5.57 million units, after they had risen at a 5.09 annual rate in August. It was the highest rate of existing-home sales since July 2007.

But the other number we mentioned last week, the number of new housing starts, turned out to be a dud. New-home starts came in at a seasonally-adjusted annual rate of 590,000 in September, when economists were expecting the number to jump to 610,000. It was up just 0.45 percent from the previous month.

There's a common factor in both of these. Many analysts attributed the jump in home sales to the $8,000 first-time buyer tax credit that's due to expire at the end of November. That's what is supposedly fueling all those home sales.

But those same people are probably driving down the new housing starts. If they need to complete their home purchase by November, there's no point in builders starting construction on a new house for them now. And by rushing to buy a house before the tax credit expires, these people are also taking themselves out of the pool of potential new-home buyers for the foreseeable future.

There's now talk that Congress will extend that $8,000 credit past November. If that happens, we could continue to see anomalies like this in the housing market for quite some time.

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