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Show Entire ArticlePlunge in Home Demand Without Aid Seen as Short-LivedReuters | June 01, 2010 | 07:02 PM EDT
The retreat in the U.S. housing market after the government halted its hefty tax credit in April should be short-lived, analysts say, and the market may resume its path to stability.
Home sales surged in April before the month-end deadline to take advantage of the credit and demand dropped sharply in the following weeks. But mortgage rates near record lows and an improving jobs market will help underpin the sector, even without the artificial stimulus of tax breaks, analysts said.
A housing sector rebound is seen as a key pillar in the economy's recovery, which has gained steam as consumer spending picks up while manufacturing activity, which has led the upswing, stays strong.
"It's back to a fundamentals market where there are no gimmicks," said Mike Fratantoni, vice president of research and economics at the Mortgage Bankers Association.
The first-time homebuyer credit, as well as $1.4 trillion in debt purchases by the Federal Reserve, served their purpose: lowering mortgage rates and restoring life to the worst housing slump since the Depression.
Sales of new homes, juiced by the tax credit deadline, leaped almost 15 percent in April to a two-year high. Existing home sales jumped 7.6 percent in April and almost 23 percent in the year.
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This is really encouraging, and I am starting to see it in the market...
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