Recent housing data — including a rise in existing home sales and a decline in the new-home sales pace — demonstrate the stimulative power of the first-time home buyer tax credit.

As the Nov. 30 deadline for the tax credit drew near, data from the third quarter of 2009 was especially compelling in showing the credit’s impact on the housing market. Knowing that they needed to settle soon in order to qualify for the credit, first-time home buyers helped push existing home sales to a seasonally adjusted annual rate of 4.9 million in September, their strongest monthly pace since July 2007. That helped boost quarterly existing home sales by 45% over the second quarter.

Existing home sales are registered at the time of settlement, and with more closings by first-time buyers of those homes coming up in October and November, existing sales should hold steady at around the third quarter average for those months. Only December and beyond will reveal the extent of an expected decline in existing home sales if the tax credit is eliminated.

Unlike existing home sales, new home sales are recorded when a contract is signed and the deposit is made. Since it generally takes five months to build the average house once ground is broken, buyers who wanted to purchase a newly-built home and take advantage of the Nov. 30 deadline would have had to purchase a completed or nearly completed home from a builder’s inventory before September. Under normal circumstances, closing on a house typically takes between 30 and 60 days, and current reports suggest that the process is taking even longer today.

The Commerce Department reported that new single-family home sales fell 3.6% in September to a seasonally adjusted annual rate of 402,000, down from 417,000 the month before, leaving sales 7.8% below their September 2008 pace of 436,000.

The drop in new home sales undoubtedly reflected the effect of the looming expiration of the first-time home buyer tax credit. Without extension — and preferably expansion — of the tax credit, new home sales are likely to sink further, with existing home sales expected to follow a similar pattern beginning in December.

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