Existing homes sales for April increased more than 15% from prior levels (annualized rate, 5.8 million units), activity in large part due to the end-of-month expiration of special recovery-focused homebuyer tax credits. This morning’s latest report from the Wells Fargo Economics Group offers some observations on what April’s spike in activity could mean for the coming summer and beyond. Their conclusions include:
- (April) was the fastest pace of sales for existing homes since November 2009—the month in which the tax credit was first set to expire. Sales are expected to slip in coming months as the effect from the tax credit goes away. The inventory of existing homes for sale grew in April lifting the month’s supply for all homes to 8.4 months. With supply growing and demand expected to fade, it is a bad picture for prices.
- After housing prices fell precipitously in the recession, the tax credits helped put a floor under prices. But prices, in the shadow of the tax credits, seem poised for a decline.
- Fading demand is evident in new mortgage applications, which fell 34.1 percent between the last week in April and the second week in May. The drop comes even as conventional 30-year mortgage rates fell below 5 percent during the same period.