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Money and Markets: Investing Insights

Housing Market Gets Tax Credit Payback

After they rushed to cash in on a government tax perk the previous month, Americans signed a great deal fewer sales contracts in November, according to a report released Tuesday by the National Association of Realtors. NAR’s index of pending home sales—which uses signed contracts, not closings—dropped 16 percent from October to November. Although the measure remained 15.5 percent above its year-earlier level, November’s reading was significantly less encouraging than October’s, when the index jumped nearly 32 percent higher than October 2008. While economists had predicted a modest monthly decline, the report was much worse than expected. "The consensus was for [pending home sales] to be down 2% … instead they were down a big daddy whopper 16%," Mark Hanson of the Field Check Group said in a report. "Now that’s a miss."

1. Tax credit payback: Housing experts chalked up the decline to the effects of the $8,000 first-time home-buyer tax credit, which juiced contract signings in October at the expense of later months. Under its original terms, buyers needed to close their home sale by the end of November to claim the credit. "[While] this credit was extended and expanded on November 6, sales prior to that were undertaken on the expectation that the credit would expire on Nov. 30, by which time transactions would have had to be settled," economists at Goldman Sachs said in a report. Many buyers scrambled to get their sales contracts signed in October so they could close the transaction by the end of November and claim the credit. The development worked to boost the pending home sales index for October.

2. Less urgency: In early November, President Obama signed a law that extended the tax credit’s deadline to the end of June for transaction closings and expanded the program to include most existing homeowners. With the new deadline still several months off, buyers felt less pressure to sign a contract in November, according to Michelle Meyer, an economist at Barclays Capital. "The extension eliminated some of the urgency to complete a sale even after the credit was extended," Meyer said in report.

To read the full article, click here …

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