Pending home sales were up for the fifth straight month in June, according to a report released yesterday by the National Association of Realtors. It was six years ago - June 2003 - the last time the pending home sales index rose for five consecutive months.

The pending homes sale index is a forward-looking indicator based on contracts signed in June. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index rose 3.6% to 94.6 from an upwardly revised reading of 91.3 in May, and is 6.7% above the index from a year ago when it was 88.7. (An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.)

Lawrence Yun, NAR chief economist, said a combination of positive market factors is fueling the gains. “Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines. Activity has been consistently much stronger for lower priced homes,” he said. “Because it may take as long as two months to close on a home after signing a contract, first-time buyers must act fairly soon to take advantage of the $8,000 tax credit because they must close on the sale by November 30.”

Regionally, the pending home sales index in the Northeast rose .4% to 81.2 in June and is 5.8% above a year ago. The index in the Midwest rose to 89.9 and is .8% higher than it was in the previous month, and 11.6% higher than a year ago. In the South, the index shot up 7.1% to 100.7 in June and is 8.9% above the index from a year ago. In the West, the index rose 2.9% to 100.4 but is .2% lower than it was a year ago.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, is hopeful that a recently elevated level of contract cancellations will ease. “Last month, Freddie Mac and Fannie Mae clarified that appraisals should be done by professionals with clear local expertise,” he said. “This should mitigate the situation of many valuations done by out-of-area appraisers coming in below the price negotiated between buyers and sellers. Hopefully, in the months ahead, we’ll see an even closer relationship between contract activity and closed transactions.”

McMillan said NAR is continuing to press the appraisal issue. “We have asked Congress and the Federal Housing Finance Agency to immediately implement an 18-month moratorium on the new appraisal rules to further address unintended consequences of the new guidelines,” he said.

NAR’s Housing Affordability Index also remains very favorable, this index is a broad measure of housing affordability by comparing the relationship between median family income, median home price, and mortgage interest rates.

The affordability index stood at 159.2 in June, down from record peaks in recent months but it remains 36.6% points above a year ago. Under these conditions the typical family would devote 15.7% of gross income to mortgage principal and interest, well below the standard allowance of 25%.

“A monthly rise in home prices and somewhat higher mortgage interest rates led to a modest decline in affordability in June, but it was still the sixth highest index on record dating back to 1970,” Yun said. “Because housing is so affordable in today’s market, job security and the first-time buyer tax credit are bigger factors in influencing home sales.”

A median-income family, earning $60,700, could afford a home costing $289,100 in June with a 20% down payment, assuming 25% of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small down payments are roughly 80% of what a median-income family can afford. The affordable price was much higher than the median existing single-family home price in June, which was $181,600.

Yun expects existing-home sales to gradually rise over the balance of the year, with conditions varying around the country. “It appears home sales are on a sounder footing and inventory is gradually being absorbed.”



Source:
National Association of Realtors