Home Buyer Tax Credit Hangover

There is a lot of confusion out there today over how the first time home buyer tax credit extension figures into the Commerce Department's report on sales of new construction.

"New Home Sales," as we call it, plummeted 11 percent, quite unexpectedly, after another rise in "Existing Home Sales" yesterday.

Let's look at timing, shall we?

The "New Home Sales" number is based on contracts signed on homes, not closings. The "Existing Home Sales" number is based on closings. So the November surge in Existing would have reflected a final push to get in under the wire on the first time home buyer tax credit, which was supposed to expire Nov. 30th. Realtors tell us 51 percent of sales in November were by first timers.

Now to the "New" home number.

The extension of the tax credit was passed by the Senate on November 4th, clearing the way for passage by the House, and was then signed into law on November 6th.

So really, there were not a lot of days lost in November, when first time buyers would have been unsure about their prospects of getting the credit. That means that even with the credit's extension, and expansion to non-first timers, sales of new construction still took the big plunge.

Some, like Peter Boockvar over at Miller Tabak, are calling it a hangover, claiming that buyers "binged" in the July through October period. That could be the case, as buyers see that they now have another six months to sit on the fence and see where prices go. So what does that say about the housing market over the next few months?

Yesterday the Realtors' chief economist, Lawrence Yun, suggested that we would see a "leveling" in the Existing Home Sales numbers because the current numbers are not sustainable in today's market. We're already seeing that in the mortgage applications numbers, which fell 10 percent last week. Mortgage rates are also heading higher.