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Aug. 4, 2009 – Pending home sales are up for the fifth consecutive month, the first time in six years for such a streak, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in June, rose 3.6 percent to 94.6 from an upwardly revised reading of 91.3 in May; and it’s 6.7 percent above June 2008 when it was 88.7. The last time there were five consecutive monthly gains was July 2003.

“Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines,” says Lawrence Yun, NAR chief economist. “Activity has been consistently much stronger for lower priced homes. 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 Nov. 30.”

NAR’s Housing Affordability Index remains very favorable. The affordability index stood at 159.2 in July, down from record peaks in recent months but it remains 36.6 percentage points above a year ago. Under these conditions, the typical family would devote 15.7 percent of gross income to mortgage principal and interest, well below the standard allowance of 25 percent.

The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.

“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 percent downpayment, 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 downpayments are roughly 80 percent 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.”

© 2009 FLORIDA ASSOCIATION OF REALTORS®

After holding fairly stable for a year, pending home sales declined in the face of job losses and an eroding economy, according to the National Association of Realtors^®.

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in November, fell 4.0 percent to 82.3 from a downwardly revised reading of 85.7 in October, and is 5.3 percent below November 2007 when it was 86.9. The current index is the lowest since the series began in 2001.

Lawrence Yun, NAR chief economist, said a weakening was inevitable. “Mounting job losses and very weak consumer confidence deterred home buyers from signing contracts in November,” he said. “December’s housing market activity could be comparably lower due to ongoing problems in the economy, so a real estate-focused stimulus plan is urgently needed.”

Yun said the outlook will depend heavily on the stimulus package. “With a proper real-estate focused stimulus measure, home sales could rise more than expected, by more than 10 percent to 5.5 million in 2009, and easily begin to stabilize home prices in many parts of the country. Stable home prices will, in turn, lessen foreclosure pressures and lay the foundations for a solid economic recovery as the nation’s 75 million homeowners regain confidence,” he said.

The impact of mortgage interest rates declining to near 50-year lows in December is not reflected in current data.

The PHSI in the Northeast dropped 7.2 percent to 63.2 in November and is 14.6 percent below a year ago. In the Midwest the index fell 6.7 percent to 74.2 and is 10.1 percent below November 2007. The index in the South declined 2.2 percent to 85.3 in November and is 12.7 percent below a year ago. In the West, the index was down 2.4 percent to 101.2 but remains 19.3 percent higher than November 2007.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said there can’t be an economic recovery without a focus on housing. “It’s crucial for Congress and the new administration to move quickly to remove impediments and offer home buyers the incentives they need to tap into today’s historic low mortgage interest rates,” he said.

“NAR advocates expanding a $7,500 tax credit to all home buyers and eliminating the repayment feature, and permanently raising loan limits to bring down interest rates for many buyers in high-cost areas. We also need to expedite short sales and unclog the mortgage pipeline,” McMillan said.

The 30-year fixed-rate mortgage should hold fairly steady through the first half of the year and rise slightly in the second half. NAR’s housing affordability index, which looks at the relationship between home prices, mortgage interest rates and family income, is on track to match a record high set in 1972.

“The unique housing affordability conditions in today’s market underscore the opportunity in giving consumers the necessary incentives to stimulate our economy through a housing recovery,” Yun said.

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*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. 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 is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

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.

Existing-home sales for December will be released January 26; the next Pending Home Sales Index will be on February 3.  For more information, please visit: pending home sales