By Courtney Schlisserman
Jan. 25 (Bloomberg) -- Sales of existing U.S. homes plunged in December more than anticipated, the month after a government tax credit was originally due to expire.
Purchases decreased 17 percent, the biggest decline since records began in 1968, to a 5.45 million annual rate from 6.54 million pace the prior month, the National Association of Realtors said today in Washington. The median sales price increased for the first time in two years, reflecting fewer first-time buyers, the group said.
First-time buyers rushed to complete deals before the $8,000 government incentive was expected to end on Nov. 30. The subsequent extension and expansion of the credit, together with the one- to two-month delay between contract signings and closings, signals demand will pick up again in the first half of this year.
“We’ll see a pickup in existing home sales in the next couple of months” as people take advantage of the tax-credit extension, said Adam York, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who forecast a 5.4 million sales pace. Although “‘we’re past the bottom,” “I don’t think there’s going to be a lot of buyers out there looking for a home outside of the tax-induced effects until they feel more comfortable with the labor market.”
Stocks trimmed earlier gains following the report. The Standard & Poor’s 500 Index was up 0.8 percent to 1,100.09 at 10:26 a.m. in New York. The S&P Supercomposite Homebuilder Index was also up 0.8 percent.
Less Than Forecast
Economists forecast existing home sales would fall to a 5.9 million rate in December, according to the median of 61 projections in a Bloomberg News survey. Estimates ranged from 5.4 million to 6.75 million.
For the year, existing home sales rose 4.9 percent to 5.16 million, the first gain in four years, from 4.91 million in 2008.
The number of previously owned unsold homes on the market decreased 6.6 percent to 3.29 million, the lowest level since March 2006. At the current sales pace, it would take 7.2 months to sell those houses, compared with 6.5 months at the end of November.
The median price was $178,300 in December, up 1.5 percent from the same month in 2008. The increase was the first since August 2007 and the biggest since May 2006, the agents’ group said. A decline in the number of first-time buyers, who usually purchases less expensive houses, helped push up the median value last month, NAR chief economists Lawrence Yun said in a news conference.
The share of homes sold to first-time buyers fell to 43 percent in December from 51 percent the prior month, Yun said, indicating the expected end of the tax credit played a role in the drop in sales.
Credit Extended
President Barack Obama and Congress extended the first-time buyer credit to cover deals signed by April 30 and closed by June 30, and expanded it to include current homeowners. Even so, some economists believe the original measure pulled sales forward, restraining demand for a few months.
After rebounding early this year, sales will probably fall off again after June, Yun said in the press conference. The degree of the decline will depend on the state of the job market, he said.
Yun said he was “generally pleased” with the December outcome since he was fearing an even larger drop following the expiration of the tax credit. “There is an increase in home- buyer confidence,” he said, adding “there is some sustainable momentum” in sales. Even with the decline, sales were still up 15 percent from the same month last year, signaling the general improvement, he said.
New-Home Sales
New-home sales, which are calculated when contracts are signed, dropped 11 percent in November to reach a seven-month low, the Commerce Department reported last month. Economists project the figures for December, due Jan. 27, will show purchases increased 4.2 percent.
The end of Federal Reserve purchases of mortgage-backed securities aimed at keeping borrowing costs low represents a challenge for the industry. The program is scheduled to expire by March 31.
Policy makers are scheduled to meet this week to discuss the direction of the benchmark lending rate between banks. The emergency programs were being wound down “in light of ongoing improvements in the functioning of financial markets,” central bankers said in their December 16 statement.
Joblessness and foreclosures are other concerns. Unemployment is forecast to average 10 percent this year, the highest level in seven decades. A record 3 million U.S. homes will be repossessed by lenders this year, RealtyTrac Inc. forecast on Jan. 14. That is up from 2.82 million in 2009, the most since the company began compiling data in 2005.
Competition with foreclosures has been especially daunting for homebuilders. KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, said Jan. 12 that fourth- quarter revenue dropped 27 percent.
KB Home’s orders rose 12 percent to 1,446 from 1,296 in the year-earlier quarter, while completed sales dropped 22 percent to 3,042. The company is “not going to make money in the first quarter” and plans to “restore profitability” in the second half of 2010, Chief Executive Officer Jeffrey Mezger said Jan. 12 in a conference call with analysts and investors.
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