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Do We Need Another Homebuyer Tax Credit?

NEW YORK ( TheStreet) -- The housing market saw sales ramp up in March and April as consumers rushed to take advantage of tax credits that offered as much as $8,000 for first-time homebuyers and $6,500 for repeat buyers. Following the expiration of those credits on April 30, the market saw a dramatic decline in demand for the month of May that spilled over into June. Lawmakers later extended the deadline to close on a home purchase and still qualify for the tax credit to Sept. 30.

The rush of homebuyers looking to take advantage of federal tax credits helped homebuilders like D.R. Horton (DHI - Get Report) and M.D.C. Holdings (MDC - Get Report) grow new home sales by strong double-digit percentages last quarter.

D.R. Horton and M.D.C. Holdings outpaced sector peers on volume -- growing closed sales volume by 60% to 6,805 homes and 71% to 1,135 homes, respectively, in the second quarter -- primarily due to their willingness to go out and build spec homes, explained Stifel Nicolaus analyst Michael R. Widner. In other words, they were willing to take the risk of building new home inventory without contracted buyers in place. That bet paid off as hoards of buyers showed up in April wanting to take advantage of the credits, and were willing to make a rushed deal to qualify.

Beazer Homes USA (BZH - Get Report) said traffic and new home orders were well above year-earlier results through the end of April, but after the tax credits expired, traffic in May and June was substantially lower.

PulteGroup (PHM - Get Report) said last week its closing volume doubled last quarter to 5,030 homes thanks in part to the tax credit.

VOTE: Do We Need Another Homebuyer Tax Credit?
Would a new round of credits help or hurt the housing market?

While spec building helped D.R. Horton and M.D.C. Holdings, among others, grow sales volumes in the run-up to the deadline, the pair may now face a new risk of having overbuilt, potentially overexposing themselves to excess inventory now flooding the market.

The Commerce Department estimated 210,000 new homes were on the market nationwide at the end of June, the lowest level of inventory in more than 40 years. Still, it would take 7.6 months to sell through that inventory at the current sales pace, down from 9.6 months in May. Six months of inventory is considered normal market conditions.

Sales of newly built homes rose 23.6% in June to a seasonally adjusted rate of 330,000, ahead of expectations, from a revised record-low rate 267,000 units sold in May.

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