New Home Sales Reflecting The Tax Credit Effect?

home under construction

As you probably know, the Census Bureau reported that new home sales were up smartly in April. They surged 14.1% over the March number and were up 47.8% over April 2009.

Conventional wisdom says that it’s a blip caused by the expiration of the tax credit. Supporting this view is the news from the MBA that applications for mortgages to purchase homes have continued to drop precipitously in May, and are now at their lowest rate observed since 1997. Case closed?

Maybe, but there’s one piece of this puzzle that continues to befuddle me. As I noted on Monday when I reviewed the existing home sales numbers, sales in the West actually fell while the rest of the country experienced strong resales. With respect to new home sales, the West had the largest month-over-month gain in April — 21.7%. Why the seeming contradiction. If it’s the tax credit that’s juicing these numbers then it seems reasonable to assume it would apply in both instances.

I can’t come up with a reasonable explanation but I’m not sure that if the data is accurate that “it’s the tax credit, stupid” argument is the whole story. There may be some underlying strength in housing that we’re not picking up or, on the other hand, it may be that the West is just an outlier in one or both categories.

Were it not for the MBA date, I would be somewhat tempted to discount the prospect of a pretty significant decline in sales going forward. Those mortgage application numbers are pretty hard to ignore, however. So, it looks like more tough sledding ahead for housing, but I sure would like to know why the West behaved so paradoxically.

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