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 National Association of Realtors (NAR) said Thursday. Although economists had expected contract signings to decline in the month immediately following the expiration of the federal home buyer tax credit, the drop was more than twice as steep as projected.
“If you’re looking for a silver lining in housing, you aren’t going to find it here,” Mike Larson of Weiss Research said in a report. “Demand has fallen off a cliff in the wake of the tax credit expiration, with pending sales falling by the biggest margin ever to the lowest level ever.” (NAR has tracked this data since 2001.)
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.
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