Despite the fact that mortgage applications are falling because of uncertainty about the ongoing potential for first-time home buyer credits, home sales are expected to have risen by 2.6 per cent during September when the report is issued later Wednesday (October 28) morning. This is according to a consensus from Thomson Reuters analysts.

Assuming the report falls somewhat in line with forecasts, new homes sales would post their six monthly gain in a row. The main catalyst for the consistent improving in the previously messy housing market has been based on builders relying on a tax credit for first-time owners.

This tax credit that for first time buyers, combined with low mortgage rates, have helped build steady momentum in housing during the last half year. This has allowed many home buyers to get great buys. The tax credit amounts to up to $8,000, but home buyers have to complete a deal by the end of November before the credit expires.

Sales of existing homes have also showed the increased stability in the overall housing sector. The report already released showed gains of more than 9 per cent in pending home sales during September. This actually marked the largest increase in greater than 26 years.

Even with historically low mortgage rates, the Mortgage Bankers Association (MBA) indicated that its volume of mortgage applications fell by 12.3 per cent last week. This was the third successive weekly decline, which can be mainly attributed to the uncertain future of the existing first time home buyers credit.

Congress is currently considering that future with the realization that the credit has been a major factor in building the key housing sector. Lawmakers are contemplating extending the first time buyer tax credit through March 31st and looking to phase it out over next year. This extension is a move that would likely be applauded by economists, real estate agents, and home buyers.

Once a decision is made on the extension, there will undoubtedly be a response in the housing market. The extension, combined with continued lower interest rates, should keep the housing market on the mend. It would be surprising if the credit is not extended, but this move would be a hiccup for the market.

Neil Kokemuller
9:23 AM EST
Wednesday, October 28, 2009

Neil Kokemuller is a Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He holds a MBA from Iowa State University. He is also an in-house stock market commentator for Live Charts UK, where you can find real time charts and share prices.

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