27 May 2010
Tax credit boosts US home sales
Lucia Mutikani (Business Report)
Washington - Sales of previously owned US homes touched a five-month high in April amid a late rush to take advantage of a homebuyer tax credit, but a jump in houses on the market pointed to a slow recovery.
While analysts generally expect a lull in home buying over the next few months, they stressed that a strengthening economy and improving labour market should prop up the housing sector in the absence of more government aid.
April sales of existing homes rose 7.6 percent month-over-month to an annual rate of 5.77 million units, the National Association of Realtors said on Monday, beating market expectations of a 5.65 million-unit pace.
"There is going to be a retrenchment in home sales after the tax credit is over. We are expecting that by the end of the year, sales will rise again on the strength of economic growth and we see job growth picking up," said Celia Chen, a director at Moody's Analytics in West Chester, Pennsylvania.
To qualify for the federal tax credit, buyers had to sign contracts by April 30 and close on the home by the end of June. Since existing home sales are measured at the time of closing, sales are likely to remain high through next month.
US financial markets ignored the data, with investors focusing on debt troubles in Europe as Spain bailed out a local bank. Stock prices were mixed, while prices for US government debt rose and the dollar firmed against the euro.
Although data continue to point to a strengthening in the US economy, budget troubles in Europe are casting a shadow over the recovery. Economists see a limited impact on the domestic economy, but worry a sustained decline in share prices could crimp consumer spending.
"The sovereign debt crisis has reawakened investor fears of a financial meltdown. It is unlikely that the domestic economy will suffer substantially from the associated dislocations in the markets," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.
White House economic adviser Lawrence Summers said the economic outlook had improved markedly, but cautioned that the European debt crisis had introduced uncertainty into the global economic outlook. He also expressed concern about the near 10 percent domestic unemployment rate. - Reuters
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