Homebuyers flooded the market in the last two months leading up to the expiration of the homebuyer tax credit.  Both new and existing home sales increased again in April, driving new home sales to its fastest annual pace since May 2008 and existing home sales to its quickest annual rate since November 2009.  The question remains what will happen now that the tax credit has expired?

Weekly mortgage application data from the Mortgage Bankers Association suggest that sales activity is set to take a bit of a dive in May.  The purchase index has now recorded three straight weekly declines since the expiration of the tax credit and is at its lowest level since April 1997.  This all suggests the tax credit did more to forward demand from May, and perhaps beyond, more so than necessarily bring buyers to the market who otherwise would not have considered purchasing a home.

Although there have also been tertiary benefits.  While the tax credit surely displaced some future demand, it also helped clear away some of the bloated inventory on the market.  New home inventory has steadily declined despite rising sales activity.  Builders are already bracing for a slowdown, evidenced by the 11.5% drop in building permits in April.  Although the 5 months of inventory in the April new home sales release from the Census may be overly optimistic given that that sales pace cannot be maintained, it is also unlikely that we will see that figure test the record-high of 12.1 months again neither.

Economic concerns in the Euro-zone have cast doubt over a global economic recovery.  Before the European crisis, the U.S. economy seemed well underway to a recovery with GDP having increased for three consecutive quarters.  Employment and income growth will very much dictate where housing goes from here as most stimuli have been withdrawn from the market with the exception of some states implementing their own local housing tax credits.

Now more than ever exists the need to have up-to-date information on the condition of your local housing market.  While national trends are important to watch, each local housing market is dynamic and to understand which direction foreclosures, prices, and demand are heading will be the single most important key to success.  Our next-generation market tool, Housing Intelligence Pro, provides a widely scalable spectrum of data on residential construction.  Check out our weekly data feature for a sneak preview into the power of HousingIntelligence Pro.

The Economy
Preliminary estimates for first quarter gross domestic product showed the economy expanding slower than advance estimates had suggested.  The U.S. economy grew 3.0% during the first quarter which is slightly weaker than the 3.2% pace in the advance release.  However, this marks the third straight quarter that the U.S. economy has expanded and further solidifies the notion that the recession is over.  Estimates for consumer, business, and government spending were all revised slightly lower in the preliminary release.

After posting an unexpected increase last week, first-time unemployment claims fell 14,000 in the week ended May 22 to a seasonally-adjusted figure of 460,000.

The consumer confidence index increased to a reading of 63.3 in May from a revised April figure of 57.7. This is the third straight month that the consumer confidence index has increased while the index has posted increases in six out of the past seven months. This is also the highest reading for the index since March 2008.  Both the present situation and expectations indexes also posted gains in May.

Housing Market
Home sales in both the new and existing home markets continued to surge in April as buyers rushed in to take advantage of the federal homebuyer tax credit before it expired at the end of April.

New home sales increased another 14.8% in April to a seasonally-adjusted annual pace of 504,000 units.  This was the second straight month that new home sales have recorded significant gains.  The annual rate of new home sales is now at its quickest pace since May 2008.  New home sales for the previous three months were also revised higher by 53,000 units.  New home sales were sparked by the upcoming expiration of the federal homebuyer tax credit, record-low mortgage rates, and falling prices.  Median new home prices in April fell to $198,400 from a revised price of $219,600 in March.  Prices are down 9.7% from the previous month and are 9.5% lower than they were this time last year.  This was the weakest annual decline in new home prices for any month since July 2009.

In April, new home inventories declined from the previous month to 212,000 units on a non-seasonally adjusted basis.  New home inventory has now recorded 32 straight months of declines and has not recorded a monthly increase in inventory levels since May 2007.  Seasonally-adjusted inventory of unsold homes declined in April to 211,000 units.  New home inventory levels are currently sitting at all-time lows.  Months of inventory posted a huge drop last month due to a surge in sales activity and declining inventory levels.  Seasonally-adjusted months of inventory fell to 5.0 months which is the lowest it has been since December 2005.  Months of inventory are now at levels that are typical in a healthy housing market.

Existing home sales increased for the second straight month in April to its fastest annual pace since November 2009.  Existing home sales rose 7.6% from March levels to 5,770,000 units.  Existing single-family home sales increased 7.4% from last month to 5,050,000 units while existing condo and co-op sales jumped 9.1% from March levels to 720,000 units.  Existing home sales are up 22.8% from the same year-ago period and have now recorded year-over-year increases in ten consecutive months.   Median existing home prices in April rebounded back to their highest levels since September 2009.  The median sales price for an existing home increased to $173,100 from a revised $169,600 in March.  Median existing home prices are up 4.0% from April of last year.  This is only the third time in the past 32 months that existing home prices have recorded a year-over-year increase.

Existing home inventory increased for the third straight month in April as sellers rushed to list their homes before the expiration of the federal homebuyer tax credit.  Existing home inventory jumped 11.5% from the previous month to 4,044,000 units.  This is the highest level of existing home inventory on the market since July 2009.  April was the first time that existing home inventory levels experienced a year-over-year increase since July 2008.

National average mortgage rates declined from the previous week to 4.78% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on May 27th.  Rates have declined for five consecutive weeks and have not recorded a weekly increase in the past seven weeks.  Mortgage rates are now back to their lowest levels since the week ending December 3, 2009 and are hovering near all-time lows.  In the week ending May 21th, the MBA’s seasonally-adjusted purchase index declined 3.3% from the previous week and was down 27.6% compared to the same time last year.  This is third straight week that the purchase index has declined and the lowest it has been since April 1997.  An increase in refinance activity due to lower mortgage rates helped to offset weaker purchase activity which led to higher overall mortgage application volume last week.

Despite lower rates which caused refinance activity to jump again last week, purchase activity continued to drop which is a sign that demand has definitely diminished since the expiration of the federal homebuyer tax credit just a few weeks ago.  According to the Mortgage Bankers Association, the refinance share of mortgage activity jumped to 72.2% last week compared to 68.1% during the previous week.

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