Pending home sales have edged up, hinting at a possible pickup of

sales activity in coming months, according to the National Association

of Realtors®.

The Pending Home Sales Index,1

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 said. “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.”

Also in February, NAR’s Housing Affordability Index2 rose to a new high.

The PHSI in the Northeast rose 10.6 percent to 63.9 in February but

is 11.2 percent below a year ago. In the Midwest the index jumped 14.5

percent to 83.1 and is 3.4 percent higher than February 2008. The index

in the South rose 4.4 percent to 85.8 in February but is 0.1 percent

below a year ago. In the West the index fell 13.5 percent to 89.6 and

is 1.7 percent below February 2008.

NAR President Charles McMillan,

a broker with Coldwell Banker Residential Brokerage in Dallas-Fort

Worth, said 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 said. “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, a broad measure of housing affordability using consistent

values and assumptions over time, shows that 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 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 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 said. “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 which will

change once inventory is drawn down and supply and demand come closer

into balance,” McMillan said.

Yun said he 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 said.

“Under these conditions, we should see price stabilization in most

markets by the end of the year.”

1The 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.

Each March, NAR Research conducts a review of PHSI seasonal adjustment factors and fine-tunes data for the past three years.

2The Housing Affordability Index is a relative index

where a value of 100 means that a family with the median income has

exactly enough income to qualify for a mortgage on a median-priced

existing single-family home, taking into account the relationship

between median home price, average effective interest rate for loans

closed on existing homes, and median family income. The higher the

index, the better housing affordability is for buyers.

The calculation assumes a downpayment of 20 percent and a qualifying

ratio of 25 percent of gross income for mortgage principle and interest

payments. The index is a general gauge with conditions varying widely

around the country. Affordability conditions are lower for first-time

buyers with smaller downpayments and less income.