Sales of newly built homes fell in September for the first time in five months. New single-family home sales dropped 3.6 percent from the previous month, according to the U.S. Commerce Department. It was brow-popping news to market watchers, who'd been expecting sales to increase by 2.6 percent in the month.

Now, wait a minute. Weren't consumers and investors (oh, and yes, real-estate agents) just cheering reports of a surprising leap in existing-home sales? The National Association of Realtors announced Friday that sales of single-family town homes, condominiums and co-ops jumped 9.4 percent in September. The rise in home sales, almost double the increase expected, had people speculating that the long-awaited housing-market rebound had finally arrived.

Then boom ... new-home sales tank. What happened?

Well, just as the $8,000 first-time homebuyer tax credit was touted by the NAR as the driving force behind the jump in existing-home sales, the tax break may be to blame for the unexpected drop in new-home sales.

The tax credit expires at the end of November, though law makers are now debating whether to extend the credit into 2010. Unless they do, buyers are running out of time to seal the deal and claim the credit. (According to the National Association of Home

Builders, for the purposes of the homebuyer tax credit, a home that's being built by the homeowner is treated as having been "purchased" on the date the owner first occupies the house. For new homes purchased from a home-building company, eligibility for the tax credit is determined by the settlement date.)

Meeting the December 1 deadline to be eligible for the tax credit is particularly difficult these days, because lenders are being pickier about lending to first-time homebuyers and taking their time reviewing appraisals before approving loans. And many potential home buyers are counting on that $8,000 to meet down-payment requirements and closing costs. (The Federal Housing Administration permits FHA- approved lenders to monetize the tax credit by making short-term loans to first-time buyers.)

With only one month to go, potential home buyers who were relying on the tax break may have decided to -- or in some cases, been forced to -- walk away from the deals.
And that leads to a drop in home sales. In fact, the decline in September sales may be steeper than the preliminary data show, since the numbers don't include contract cancellations. Some of the "sales" reported each month are just contracts to buy new homes. If buyers change their minds and cancel the contracts, the Commerce Department revises its sales figures the following month to reflect the change in sales (that's why the data's called preliminary).

With the traditional fall home-shopping season already tailing off, it will be interesting to see how residential home sales of all shapes and sizes fare should the home buyer tax credit be allowed to expire in December.

What does the housing market look like in your backyard? Are home prices stabilizing? Do you think Congress should extend the home-buyer tax credit are allow it to expire? (I'm all for letting the tax credit die, but that's fodder for a future post.)

Terri Cullen is an award-winning financial journalist. She was one of the original team of editors who helped to launch The Wall Street Journal Online. Terri is also the author of "The Wall Street Journal. Complete Identity Theft Guidebook." Read her bio to learn more about her.

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