This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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) and M.D.C. Holdings (MDC) 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) 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) 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.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,970.60 -11.99 -0.07%
S&P 500 1,977.08 -1.83 -0.09%
NASDAQ 4,455.4080 +10.4990 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs