The tax incentives expired and the housing market index dropped to 17 in June according to the National Association of Home Builders, the lowest level since March. The tax credits of up to $8,000 expired on April 30, although buyers with signed contracts have until June 30 to complete their purchases. Now, experts anticipate home sales will slow in the second half of this year. In addition, high unemployment and tight mortgage lending continue to keep many buyers on the sidelines.
The drop in activity is “a wake-up call to the fact that the market will struggle to stand on its own two feet without the tax credit,” wrote Paul Dales, an Economist with Capital Economics. “The double-dip in both activity and prices that we have been expecting for some time appears to have begun.”
New homes sales made up about 7 percent of the housing market last year which is down from about 15 percent before the recession. It’s also bad news for the economy. Each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The impact is felt across multiple industries, from makers of faucets and dishwashers to lumber yards.