Pending Home Sales Fall Off a Cliff As Tax Credit Expires

Pending home sales fell 30.0 percent in May, according to the National Association of Realtors, as the government's home buyer tax credit came to an end.

Economists had expected a drop of just 14.2% in the index. The larger than expected drop puts into question the stability of the still-fragile national housing market.

The 30 percent drop brings the Pending Home Sales Index to 77.6, 15.9 percent below May of last year when it was 92.3.

The pending home sales data reflects contracts and not closing, which lags by one to two months. However, many closing have been delayed due to the rush of volume ahead of the April 30 deadline for the home tax credit. The June 30 closing deadline for the tax credit has now been been extended by Congress in legislation passed yesterday, which President Obama is expected to sign into law.

National Association of Realtor chief economist Lawrence Yun said the sharp decline in contract signings in May was "natural" as consumers rushed to meet the tax credit eligibility deadline in April.

"The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private sector job creation in the second half of the year," Yun commented.