US new home sales stumble in Sept as tax credit wanes

28 October 2009 16:59  [Source: ICIS news]

WASHINGTON (ICIS news)--US sales of new single-family homes fell by 3.6% in September, the Commerce Department said on Wednesday, marking a sharp reversal of nearly seven months of improvement.

The National Association of Home Builders (NAHB) attributed the September decline in sales to the looming expiration of the $8,000 (€5,440) federal tax credit for first-time home buyers.

That tax credit went into effect in January this year and has been credited by housing sector officials for prompt gains in new home sales in February and during the April through August period.

The tax credit is set to expire on 30 November, and housing officials say that approaching deadline has already chilled interest among first-time home buyers because there is not enough time to complete a new home purchase by that deadline.

New home construction is a key downstream consuming sector for the US chemicals and plastics industries.

Each new single-family residence is said to account for some $16,000 in chemicals or derivative products such as plastic pipes, adhesives, insulation, roofing materials and paints and coatings among others, according to the American Chemistry Council (ACC).

The department said that sales of new single-family homes in September were at a seasonally adjusted annual rate of 402,000 units, down 3.6% from the August rate of 417,000 and nearly 8% below home building activity of 436,000 units in September 2008.

NAHB senior economist Bernard Markstein said the September decline in new home construction is clearly the result of buyers’ expectations that the $8,000 tax credit is about to expire.

“Essentially, by September - when these home sales data were recorded - it was not possible for anyone to go to a home builder, sign a contract, then qualify for the tax credit and close the sale before the end of November,” Markstein said.

It takes about three months for a new home to be built.

Markstein said the sharp decline in September’s new home sales should give Congress further evidence that the tax credit programme was effective and should be extended.

As many as 17 different bills are pending in Congress to extend and expand the tax credit - including proposals to boost the credit to $15,000 and make it available to all home buyers - but legislators so far have been unable to agree on a single package.

The gains in new home sales over the first half of this year “showed how well the tax credit worked, and with it now essentially dead for home buyers we are seeing the demand fall and the market decline”, Markstein said.

“This supports our view that Congress needs to expand and extend the credit,” he said.

Markstein said that US home builders would be happy with any extension measure Congress can agree to, but that “a one-year extension and an expansion of the credit to all home buyers would do the most good for housing and the national economy”.

He said that despite the ongoing debate and delay in Congress, “I think that we will get something, maybe just a simple six-month expansion of the current tax credit”.

Single-family new home sales in 2008 totalled 481,000 and are expected to reach 390,000 this year.  Markstein said the anticipated 2009 total for new homes includes 40,000 units attributed to the tax credit.

($1 = €0.68)

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