Pending Home Sales Plunged 30%, New Construction Slowed -0.2%

The NAR reports pending home sales dropped 30%. This was due to the end of an 8,000 tax credit.

The Pending Home Sales Index, a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April, and is 15.9 percent below May 2009 when it was 92.3. The falloff comes on the heels of three strong monthly gains as home buyers rushed to take advantage of the tax credit.

While this was expected, the 15.9% below May 2009 is the number to look at. Even more interesting while NAR reports:

The data reflects contracts and not closings, which normally occur with a lag time of one or two months. However, many closings have been delayed recently from a rush of buyers into the system and slow processing of short sales, in addition to the heavy volume and a more thorough loan underwriting process. As many as 180,000 buyers who signed contracts by April 30 may have missed the June 30 closing deadline for the tax credit.

The reality is Congress passed an extension of the homebuyer's tax credit, yet to be signed into law. CBS MarketWatch:

To qualify for the federal tax credit of up to $8,000, a buyer needed to sign a contract on the home by April 30 and needed to close on the sale by June 30. Congress passed legislation on Wednesday to give buyers until the end of September to close on the sale, after realtors and other groups complained about delays in closings.

construction spending also dropped 0.2%, but private new construction dropped 0.5%. Government construction helped reduce the decline.

Lodging dropped -3.9% and -62.1% for the year. Total construction is down -8.0% for the year.

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re-examining stimulus

I need to go dig into Stimulus dollars, or find independent experts/economists, credible, who have analyzed. That said, the reason I posted this two metrics is I suspect this is where we're seeing Stimulus, i.e. the tax credit propping up home sales and prices, artificially, and public construction spending.

The entire residential strategy I find inane. Why they didn't simply let everyone in the country, possibly by some sort of regional calculator, take a principle reduction is beyond me. Home prices were clearly way over inflated and what does this really get long term? People are being foreclosed on, after these tax credits expire, home prices fall because they were artificially pushed up and people go underwater.

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Unsustainable Tax Credits

Why have an expiring credit? It just takes the candy or the heroin away from the addict - housing market. The bust after the housing credit expiration is understandable. The Dutch Tulip Mania endures, in The Wealth of Nations, Smith recounts how the Dutch mortgaged houses to buy the tulips when the price of tulips got very high.

I think you are saying is that is so especially dangerous about the expiring credit is people buying on the inflated prices the housing credit creates, only to find the price deflating later, and lose a house for that.

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Burton Leed