By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- New sales contracts on existing homes fell sharply in May after a federal subsidy for buyers expired at the end of April, a trade group reported Thursday.
The pending home sales index plunged 30% in May after rising 23% between January and April, the National Association of Realtors reported. The index, which measures signed sales contracts on previously owned homes, was down 15.9% compared with the same month a year ago.
The pending home sales index is a leading indicator for sales of existing homes, which are recorded at the time of the closing.
The sharp drop in pending home sales mirrors the 33% drop in sales of new homes in May, which are also recorded at the time of the sales contract.
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.
Sales of existing homes held up well through May, with sales up about 13% compared with February. But everyone expects sales to fall off sharply in July and August with the expiration of the tax credit.
The tax credit was designed to spur sales and keep prices from falling further. Home prices have been roughly unchanged for the past 10 months, according to the Case-Shiller price index.
Many analysts believe the credit pulled sales forward that would have taken place any way.
"Without the tax credit, there will be more aggressive price negotiations between buyers and sellers," said Lawrence Yun, chief economist for the NAR. "The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private-sector job creation in the second half of the year."
