Some Good News on the Housing Front

New single-family home sales also rallied in March, jumping a near record 27% from February’s sales pace of 324,000 to a seasonally adjusted 411,000, up 24% on a year-over-year basis. The South showed the biggest gain — 43.5% — and the Northeast was the second most robust region of the country for sales, coming in at 35.7%, although rebounding from an unusual low in February.

While the approaching expiration date for the home buyer tax credit accounted for much of the bounce back, unseasonably harsh winter weather in February added some pent-up demand to the housing market in March.

In order to qualify for the home buyer tax credit, buyers had to sign sales contracts by April 30 and they are also required to meet a closing deadline of June 30. Since new home sales are reported when a contract is signed, April new home sales should be robust. Existing home sales are recorded at closing, so they should see a lift from the tax credit through June.

To the extent that some prospective home buyers have moved their purchases forward to qualify for the credit, new home sales after April and existing home sales after July are likely to experience some leveling off. At that point, the reviving economy, low mortgage rates, affordable house prices and new job growth will take over as the forces driving home buying activity.

In the meantime, adverse credit conditions will continue to serve as a speed bump in the housing recovery as buyers grapple with tighter credit standards and builders attempt to overcome major impediments to obtaining and renewing acquisition, development and construction (AD&C) loans.

Builders also continue to face intense price pressure and competition from foreclosure and short sales. Appraisers are using distressed sales in their valuations of newly built properties without properly adjusting for the run-down conditions of many previously owned homes that have been languishing on the market. Pressure from banking regulators can further encourage “low ball” appraisals. For builders, unfortunately, poor appraisals often can result in lost sales.