Market Outlook - BNP PARIBAS - Investment Services India

US: Get It While You Can
• As the first-time homebuyers’ tax credit
expiry date grew close, existing home sales
plummeted by 16.7% m/m in December, giving
up almost 60% of the gain recorded over the
previous six months.
Chart 1: Reality Check
• The rebound in housing demand observed
so far appears to have been largely supported
by government programmes, suggesting the
recovery is far from becoming self-sustaining.
• Given that the tax credit has largely
supported activity at the lower end of the
market, it is not surprising that inventories of
higher-price homes remain excessive.
• With the tax credit now extended until April,
housing demand should rebound in early 2010.
Nevertheless, prospects for H2 2010 appear
sluggish and risks are tilted to the downside.
Source: Reuters EcoWin Pro
Chart 2: Sales Remained Strong in the West
Still on life support
After hovering around an annualised level of 4.63
million units between November 2008 and May 2009,
existing home sales surged over the second half of
last year, reaching a 33-month high of 6.54 million in
November as prospective home buyers rushed into
the market to take advantage of the tax credit before
it expired 1 (Chart 1). Indeed, a survey conducted by
the National Association of Realtors (NAR) reported
that first-time buyers accounted for around half of
total existing home sales in the three months to
November. Despite this healthy start, as the tax
credit’s expiry date grew close, prospective home
buyers left the market en masse, suggesting that the
rebound in housing demand observed so far has
been largely supported by government programmes
and therefore that the recovery is far from becoming
self-sustaining. Indeed, existing home sales
plummeted by 16.7% m/m in December, giving up
almost 60% of the gain recorded over the previous
six months.
Tax dollars at work
According to the NAR, 2 million resale properties
benefited from the tax credit in 2009. Given that
existing home sales totalled 4.7 million (in nonseasonally
adjusted, non-annualised terms) over the
first 11 months of last year, we conclude that 42% of
buyers purchasing a resale home took advantage of
1
The 2009 first-time homebuyers’ tax credit was initially set to expire at the end
of November.
Source: Reuters EcoWin Pro
this programme. While it is likely that some of these
sales would have taken place even without the tax
credit, the government programme likely borrowed
strength from the future as prospective buyers
rushed into the market before the credit expired. As
such, the future path of home sales is likely to be
weaker than it would have been without the tax
credit.
Regionally, existing home sales declined across
most of the country in December, dropping sharply in
the Northeast (-19.5%), the Midwest (-25.8%) and
the South (-16.3%) (Chart 2). In contrast, sales
eased by a more moderate 4.8% m/m in the West, as
high foreclosures rates in this region likely supported
demand. Indeed, according to the NAR, sales of
distressed properties accounted for 32% of total
resale volumes in December, while data from
RealtyTrak indicate that around 40% of foreclosures
are concentrated in the West.
Anna Piretti 29 January 2010
Market Mover
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