Pending Home Sales up for December 2008

The U.S. housing market is starting to show some signs of improvement as homebuyers begin to take advantage of more affordable home prices and historically low mortgage interest rates.

According to a report from the National Association of Realtors, the pending home sales index increased by 6.3% in December to 87.7 - 2.1% higher than December 2007 when it was 85.9. (An index of 100 reflects the average level of contract activity in 2001 - the first year to be examined, and the first of five consecutive record years for existing home sales.)

Lawrence Yun, NAR chief economist, said the index shows a modest rebound. “The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month,” he said. “The biggest gains were in areas with the biggest improvements in affordability.”

The housing affordability index - which shows the relationship between home prices, mortgage rates, and family income - rose 10.9% in December to 158.8. That's the the highest on record, showing that these are the most favorable conditions for home buyers since the NAR began keeping track in 1970. (An index value of 100 is when a family with the median income has exactly enough income to qualify for a mortgage for a median-priced home.)

Some areas of the country picked up better than others for December. The pending home sales index in the Northeast fell to 1.7% to 62.1 - 14.5% below the index in December 2007. The index in the Midwest increased 12.8% to 83.7% but is still down 1.2% from a year ago. In the South, the index spiked 13% to 96.8, and is 1.6% above the index from a year ago. The index in the West fell 3.7% to 97.5, but is 17.5% higher than a year ago.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the rise in contract signings is encouraging. “However, housing activity remains weak compared with potential demand, and the market is fragile given the economic backdrop,” he said.

In addition to lower homes prices and better interest rates, the $7500 first-time homebuyer's credit is also likely to have some influence on new buyers making a move on purchasing a home. The first-time homebuyer's credit is different than most in that it has to be paid back to the government over fifteen years, so it really works more like an interest-free loan than a credit. But still, it's extra cash when many homebuyers could really use it.

Currently, the first-time homebuyer's credit is for homes purchased after April 8, 2008 and before July 1, 2009. Also, the credit is phased out for high-income homebuyers.

McMillan said some enhancements that could bring more buyers into the market include expanding the $7,500 tax credit to all home buyers and extending it until the end of 2009, and making loan limit increases permanent. “We also need to direct funds in the Troubled Asset Relief Program to add liquidity to the mortgage market, buy down mortgage interest rates and increase other forms of credit,” he said.

Yun said the outlook for housing and the economy is murky. “Although Congress and the Obama administration are taking steps to help the economy, the stimulus package must deal with the root cause of the economic downturn, and apply the right fix to turn it around. If housing is ignored, a significant downward overshooting of home prices would continue to drag the economy down independent of the scale of the stimulus,” Yun said.



Source:
National Association of Realtors