Experts see underlying weakness in housing

By Bill Briggs
msnbc.com contributor
updated 11:08 a.m. ET May 26, 2010

The housing market had a spring fling with buyers hoping to find bargains using the now-expired government tax credits and record low interest rates.

Now it's back to reality.

The sweet sales pace of March and April, many experts agree, will sour by mid-summer, and the national housing downturn has not yet ebbed.

“Anyone expecting a robust rebound in the housing market ... will be sorely disappointed,” said Stan Humphries, chief economist for the online real estate database Zillow.com.

Although sales of existing homes and new homes rose for two straight months in March and April, values are still weakening, according to the widely watched Standard & Poor's/Case-Shiller index reported Tuesday.

Case-Shiller’s composite of 20 U.S. cities found a “renewed weakness” in housing prices amid climbing foreclosure rates and the end of the tax incentives.

“The correction is definitely not over,” said Benjamin D. Clark, a Salt Lake City broker and president of the National Association of Exclusive Buyer Agents.

Spring sales have been boosted by historically low interest rates and a federal tax incentive that was worth up to $8,000 for home buyers who signed purchase agreements by April 30.

Sales of existing homes rose 7.6 percent in April on top of a 7 percent increase in March, according to the National Association of Realtors, which touted “a return of buyer confidence with stabilizing home prices.”

The Commerce Department said Wednesday that sales of new single-family homes jumped 14.8 percent to a seasonally adjusted annual rate of 504,000 units. That was after a 29.8 percent surge in March, the biggest monthly increase in 47 years.

But Clark said many agents believe the federal tax credit “merely postponed, delayed, or softened a meaningful and inevitable correction.”

“I don't know if low interest rates alone will keep existing home sales on the upswing,” he said.

Under the federal incentive, first-time home buyers got an $8,000 tax credit and repeat home buyers got a $6,500 credit for home purchases in which binding sales contracts were signed by April 30. (Qualified buyers have until June 30 to complete their purchases.)

Clark said some agents believe the looming expiration of the tax credit merely pulled some business forward.

Indeed, a recent report by the Mortgage Bankers Association indicated that cheap loan rates — tamped even lower by concerns over Europe’s economy — have not filled the void left by the tax incentives. Mortgage applications for home purchases fell 27 percent in the week ended May 14 to the lowest level since May 1997.

Still, the happy vapors of the tax incentives will, on paper, continue to inflate home-sale stats nationally for the next five weeks, analysts said. That’s because many of the homes that went under contract in April had closings scheduled for May and June.

“We’re expecting a barn-buster June in our closings,” said Ted C. Jones, senior vice president and chief economist at the Houston-based Stewart Title Guaranty Company. “In fact, we had an internal memo go out saying no one can take vacations in June.”