Rising property prices and a steady growth in sales show that the US government must extend its first time buyer tax credit system as it is boosting the real estate market, experts say.
Both the National Association of Realtors and organisations that track the monthly changes in the real estate market, believe that ending the scheme in November will be a blow to the recovering property market.
The latest figures from the NAR show that sales fell 2.7% in August compared with July but they were still up 3.4% compared with the same month in 2008. Also in the last four months residential property sales have increased by 15.2%.
It says that the continued growth in real estate sales is due in a large part to the first-time homebuyer tax credit which gives qualifying buyers up to $8,000 in tax refunds.
Indeed, according to a recent survey by Campbell Communications it has resulted in 357,000 additional property sales so far in 2009.
‘Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions,’ said Lawrence Yun, NAR chief economist.
‘The recent trend shows broad improvement in most of the country, but with an expected rise in foreclosures over the next 12 months we need to maintain a healthy level of ready buyers to absorb the inventory. An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market,’ added Yun.
The scheme has been a positive boost for the market according to Radar Logic, whose latest historical price trend index shows that the growth in housing prices between their lowest point of the year in March to the end of July was better than expected.
From March 30 to July 23 monthly composite, which measures housing prices in major US markets, grew by 7.2%, compared to the 5.4% average gain over that same period over the last 10 years.
‘Had the increase in the RPX Composite been the result of seasonal factors alone, one would expect the seasonally adjusted index to remain flat over that period. The fact that it increased indicates that the strength in home prices exceeds what one would expect given seasonal factors alone,’ it says in a report.
It says that government incentives like the first time home buyer tax credit could influence demand in the near future. ‘If the current trend continues and the demand for housing holds up, home prices could continue to recover despite the record number of foreclosures,’ the report concludes.