by Calculated Risk on 3/29/2010 10:16:00 PM

As expected, sales are picking up again (contracts must be signed before April 30th to qualify for the Federal tax credit):

From David Streitfeld at the NY Times: Spurt of Home Buying as End of Tax Credit Looms (ht Ann)

After several disastrous months for home sales across the country, when volume dropped by 23 percent, the pace appears to be picking up again. The number of Des Moines homes under contract in February rose by a third from the January level. The number of pending contracts jumped 10 percent in Naples, Fla., 14 percent in Houston and 21 percent in Portland, Ore.

These deals will be reflected in the national sales reports when they become final, this month or next. There is no evidence that prices have begun to move in response to the higher volume. Indeed, so many homes are coming on the market that prices might well fall further.

And unfortunately some people are calling for an extension:

Robert Shiller, a professor of economics at Yale and co-developer of the Standard & Poor’s/Case-Shiller housing price index, is an early advocate. He thinks the credit was a bad idea that nevertheless the market cannot do without.

“You don’t make drug addicts go cold turkey,” Mr. Shiller said. “The credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful. People will be in a bad mood about buying a house.” He advocates phasing it out gradually.

Dr. Shiller is right that the credit was a bad idea, but he is forgetting that existing home sales add little to the economy - and encouraging new home sales with an excess supply is counterproductive.

I am hearing from agents that sales activity is picking up in California too. But I don't expect the increase in sales to be as significant this May and June (when contracts close), as last October and November when the first tax credit was expiring.

We must remember not to mistake activity with accomplishment (to quote John Wooden). This little extra activity does nothing to reduce the overall supply.