Stocks Tank on First-Time Homebuyer Tax Credit

Even though the first-time home buyer tax credit doesn’t expire for three months, analysts’ assessment of the pending demise of the credit sent helped end the stock market’s four day rally today, driving down housing and financial stocks.

Wall Street’s lack of faith in the housing stimulus program mirrors the market consensus that the Cash for Clunkers program, which ended officially today, will have no lasting impact on the auto industry.

“There are reasons to believe the sales increase of recent months is temporary, since to a significant degree they were artificially driven by the $8,000 bonus being paid to first-time home-buyers. The National Association of Realtors (NAR) reports that 30% of July home sales were to first-time home-buyers enticed by the bonus. Unfortunately, the bonus program expires November 31, and given the time it takes to close a deal the NAR says would-be buyers need to make offers by the end of September. So at the end of September, six weeks away, will that high percentage of home sales to first-time buyers, 30% of total sales, go away? One would think most of it will,” said analyst Sy Harding in StreetSmartReport.com.

Paul Nolte of Hinsdale Associates said, “”What makes the data more concerning for the long-term viability of any recovery that we may be in the middle of is much of the activity came from distressed sales, inventories of unsold homes still rose, and home prices are still falling.”

Among financials, Bank of America fell 0.63%, Wells Fargo fell -2.22%, JP Morgan Chase. Among builders, Pulte was down 0.39%, Toll Brothers fell -4.10%, and Beazer lost 2.26%.

Unlike the auto industry, builders are fighting hard to get the $8000 credit extended another year and expanded to include all buyers. Should it succeed, the industry’s standing on Wall Street should soar.