Contract activity for pending home sales has risen for six straight months, a pattern not seen in the history of the index since it began in 2001, according to the National Association of Realtors®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2 percent to 97.6 from a reading of 94.6 in June, and is 12.0 percent higher than July 2008 when it was 87.1. The index is at the highest level since June 2007, when it was 100.7.
Affordability at Record High
Lawrence Yun, NAR chief economist, said the housing market momentum has clearly turned for the better. The recovery is broad-based across many parts of the country. Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit, he said.
Other buyers are taking advantage of low home values before prices turn higher. Nationally, the typical mortgage payment now takes less than 25 percent of a middle-income family's monthly income to buy a median priced home, with payment percentages so far in 2009 being the lowest on record dating back to 1970. As long as home buyers stay within their budget, mortgage payments will be very manageable, Yun said.
NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit. Buyers have little time to act because they must complete the transaction by November 30 to qualify for the credit. Unless extended, contracts signed but not completed by that date will not be eligible - it is taking approximately two months to complete home sales in the current market.
- Northeast: The Pending Home Sales Index declined 3.0 percent to 78.8 in July but is 4.7 percent higher than July 2008.
- Midwest: The index slipped 2.0 percent to 88.1 but is 8.1 percent above a year ago.
- South: Pending home sales activity rose 3.1 percent to an index of 103.8 in July and is 12.0 percent above July 2008.
- West: The index jumped 12.1 percent to 112.5 and is 20.0 percent above a year ago.
Keep the Momentum Going
NAR President Charles McMillan said Congress needs to keep the momentum going. Even with a good recovery taking place, the market is not yet back to normal. With a gradual absorption of inventory, we are on the cusp of a general stabilization in home prices, he said.
To ensure that housing has a broad stimulus to the overall economy and stays on sound footing, we're encouraging Congress to extend the tax credit into 2010, and to expand it to all buyers of primary residences. The faster we stabilize home prices, the fewer families will face foreclosure and the quicker credit can be extended to other sectors of the economy, McMillan said.
NAR's Housing Affordability Index stood at 158.5 in July, below the peak set in April but is still 36.0 percentage points higher than a year ago. 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.
Yun expects existing-home sales to rise through the fourth quarter. Unless the tax credit is extended, no one should be surprised to see home sales drop in the first quarter of next year, he said. However, the fundamentals of the housing market and the economy are trending up, and we expect home sales to generally pick up in the second quarter of 2010. The buyer psychology may be shifting from, 'Why buy now when I can purchase later?' to 'I don't want to miss out on a recovery.'