May 1, 2009
Big Gains in Pending Home Sales, South Up 4.4%
Big Gains in Pending Home Sales, Affordability
Increases in pending home sales suggest a
possible upswing in sales activity in coming months, according to the
National Association of REALTORS.
The Pending Home Sales Index,
a forward-looking indicator based on contracts signed in February, rose
2.1 percent to 82.1 from a reading of 80.4 in January, but is 1.4
percent below February 2008, when it was 83.3.
Lawrence Yun, NAR chief economist, said the market is continuing to underperform.
“Pending home sales have a way to go for
there to be a meaningful increase, but recent increases in shopping
activity are hopeful indicators that we’ll see additional sales gains,”
he says. “More buyers are getting into the market to take advantage of
stimulus incentives and much improved housing affordability conditions,
but it will take a few months before we could see this turn up in
measurable sales contract activity.”
Additionally, NAR’s Housing Affordability Index rose to a new high in February.
The Regional Breakdown
The PHSI picture varied across U.S. regions, with increases everywhere except the West:
1. Northeast: rose 10.6 percent to 63.9 in February but is 11.2 percent below a year ago.
2. Midwest: jumped 14.5 percent to 83.1 and is 3.4 percent higher than February 2008.
3. South: rose 4.4 percent to 85.8 in February but is 0.1 percent below a year ago.
4. West: fell 13.5 percent to 89.6 and is 1.7 percent below February 2008.
NAR President Charles McMillan says home buyers are in an excellent position.
“The drop in mortgage interest rates and
home prices mean the buying power of a typical family has never been
better,” he explains. “If you have a good job and long-term plans, it’s
unlikely that you’ll find a much better time to buy a home. This is
especially true for first-time buyers who can qualify for an $8,000 tax
credit this year, have a great selection of homes to choose from, and
are in a favorable negotiating position.”
NAR’s Housing Affordability Index rose 0.9
percentage points to a record high of 173.5 in February from an
upwardly revised index of 172.6 in January, and is 36.3 percentage
points higher than a year ago. The HAI shows the relationship between
home prices, mortgage interest rates and family income is the most
favorable since tracking began in 1970.
A median-income family, earning $59,700,
could afford a home costing $285,600 in February with a 20 percent down
payment, assuming 25 percent 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 percent of
that amount. The affordable price is considerably higher the median
existing single-family home price in February, which was only $164,600.
“Obviously, potential home buyers need to
be managing their existing debt effectively,” McMillan says. “A REALTOR
can counsel you on what you may be able to afford given your personal
financial situation. In some cases, buyers who want to build their
future through homeownership may need to start reducing their debt and
improving their credit score before entering the housing market.”
Last year at this time, the typical family
could afford a home costing $265,600, which is $20,000 less than the
current affordable price.
“Homes in many areas are now selling for
less than replacement construction costs — clearly, this is an abnormal
situation that will change once inventory is drawn down and supply and
demand come closer into balance,” McMillan says.
Yun expects housing inventories to rise
through early summer from a normal seasonal pattern of more sellers
appearing in the spring.
“But with the positive housing stimulus
incentives now in place, we expect home sales to gain momentum in the
second half of the year with first-time buyers absorbing a lot of the
excess inventory,” he says. “Under these conditions, we should see
price stabilization in most markets by the end of the year.”