Low mortgage rates, tax credits lift home sales in April

(This is an article from The Denver Post, May 25, 2010, reported by Alan Zibel and Martin Crutsinger)

WASHINGTON — Homebuyers rushed to take advantage of government incentives and low mortgage rates in April, giving the housing market its biggest boost in five months.

But now that a homebuyer tax credit has expired, growth in the second half of the year will depend on the lure of historically low mortgage rates and the strength of the economic recovery.

Some economists say mortgage rates alone won't be enough to propel the market.

"Although mortgage rates have fallen sharply, the combination of high unemployment, heavy indebtedness and tight credit suggest to us that demand will stumble," said Paul Dales, an economist at Capital Economics.

Sales of previously owned homes rose 7.6 percent to a seasonally adjusted annual rate of 5.77 million, the National Association of Realtors said Monday. The increase in sales sparked a rise in home prices. The median price for a new home rose to $173,100, up 4 percent from a year ago.

The national numbers are similar to earlier reports on metro area home sales. A record number of homes in the Denver area went under contract in April, according to data released earlier this month.

There were 6,616 homes placed under contract in the metro area last month, a 27.6 percent increase over April 2009, according to data released this month. There were 4,188 residential sales closed last month, up 16.3 percent from 3,602 closings in March and 23.5 percent from 3,390 in April 2009.

Nationally, mortgage rates fell last week to the lowest level for the year and close to 50-year lows as worries over the European debt crisis sent investors rushing into the safety of U.S. credit markets.

But Patrick Newport, an economist at IHS Global Insight, said the key to growth in the housing market won't be low mortgage rates.

"What really will drive sales forward and I mean after July, will be the job market," Newport said. "Having a good mortgage rate helps affordability, but we've had low mortgage rates for a long time now and sales have stayed below 5 million, except when the tax credit was involved."

Denver Post staff writer Margaret Jackson contributed to this report.