Tax Gimmick Accounts for Strong Showing of New Home Sales

The Commerce Department yesterday indicated that sales of existing homes were up 27% in March, a marked improvement from a month earlier.

"The Commerce Department reported that new-home sales jumped to a seasonally adjusted annual rate of 411,000, reversing February's record low and far exceeding the expectations of many experts who track the industry.

"We needed a grand slam . . . and we got it," Patrick Newport, an economist at IHS Global Insight, wrote in a note to clients.

Sales are up nearly 24 percent from March 2009, although they remain far below the peak in mid-2005."

So with new home sales booming we must be back in business on the economy, right?!

Not exactly.

What you're seeing are home buyers acting rationally. With the $8,000 tax credit expiring shortly (to receive the credit, buyers have to sign a contract by April 30 and complete the purchase by July 30), buyers are expediting the purchase of homes that might otherwise have been deferred until later this year or next.

After the tax credit expires and similar to how auto sales fizzled out after the cash-for-clunkers program expired, expect to see new home sales plummet.

Politicians would have been better off reducing taxes (and spending) for everyone, rather than for a select few that chose to buy houses over the past year.