TAX NEWS - June 2010

US Tax: New home sales drop dramatically in May after federal tax credits expired

Wednesday, new home sales numbers were released for May and fell dramatically; many experts say that the expiration of the homebuyer tax credit at the end of April added to the drop in sales. New homes sales in the US dropped a staggering 32.7% in May, following two straight months of gains.

New homes sales from last year at this time are down 18.3% and according to CNN Money: "This is the slowest sales pace since the Commerce Department began tracking data in 1963."

"We expected a slowdown, but the extent of this decline was a surprise," said Anika Khan, an economist at Wells Fargo.

"Clearly, the lack of a tax credit had a lot to do with it, and it's going to be a bit of a bumpy road ahead as we get a few more months of payback," Khan said.

First time home buyers were eligible for an $8,000 tax credit, and repeat buyers were eligible for a $6,500 tax credit that expired April 30. Home sales grew dramatically in March and April while buyers took advantage of the credits, and they must close those deals by June 30, but the Senate may vote to extend that deadline to September 30.

"A full housing recovery is contingent on employment," Khan said. "When we see the unemployment rate abate, and some growth in salaries and incomes, we'll get some sustainable momentum in the housing market."

The current mortgage rate is 4.75% on a 30-year fixed mortgage, and Fox News reported Wednesday that this isn't enough of an incentive to get people to buy a home.