Obama tax breaks fail to prevent home sales from tumbling

Gautham Nagesh Contributor
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January was another tough month for the housing market with new home sales falling to an all-time low and existing home sales taking a dive. Combined with a dip in consumer sentiment, the numbers may renew concerns that the economic recovery has yet to reach Main St.

On Wednesday the Commerce Department announced that sales of new, single-family homes fell 11.2 percent from December to January to the lowest annual rate on record. Friday brought more bad news as the National Association of Realtors reported existing home sales fell 7.2 percent in January, the second-largest decrease on record after December’s 16.2 percent decline.

“It’s not good news,” said Lawrence Yun, chief economist for the real-estate industry lobbying group. “There is rising concern about the strength of the housing recovery.”

“This disappointing report highlights just how fragile the economic and housing recovery is right now, and the uncertainties that continue to weigh on consumers, particularly with regard to concerns about job security,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich.

Jones said that even with exceptionally favorable home buying conditions — including low interest rates and the federal home buyer tax credits — “many consumers simply weren’t confident enough to go forward with a new-home purchase in the beginning of this year.”

The numbers show that the $8,000 and $6,500 federal tax credits designed to spur home purchases have had little effect since November, when home sales reached their highest levels since 2007. Critics argued last year that the credits would only motivate people already planning to purchase a home to do so sooner, not create additional demand. NAHB chief economist David Crowe said he expects the credits to provide a boost before they expire in April.

“While the overall economic picture has brightened somewhat, these numbers indicate that the road to a housing and economic recovery remains very uncertain. Many Americans have yet to see much evidence of improvement first-hand, and are therefore reluctant to consider a home purchase,” Crowe said.

One other piece of downbeat economic news came out Friday: The University of Michigan’s consumer sentiment index fell from 74.4 to 73.6 in January. The markets were mixed in morning trading, dropping on the early news before rallying around mid-day.