Pending home sales have increased for seven straight months, the longest in the series of the index which began in 2001, according to the NATIONAL ASSOCIATION OF REALTORS®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in August, rose 6.4 percent to 103.8 from a reading of 97.6 in July, and is 12.4 percent above August 2008 when it was 92.4. The index is at the highest level since March 2007 when it was 104.5.
Lawrence Yun, NAR chief economist, said not all contracts are turning into closed sales within an expected timeframe. The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules, he said. No doubt many first-time buyers are rushing to beat the deadline for the $8,000 tax credit, which expires at the end of next month.
The Pending Home Sales Index in the Northeast jumped 8.2 percent to 85.3 in August and is 12.0 percent higher than August 2008. In the Midwest the index rose 3.1 percent to 90.8 in August and is 7.6 percent above a year ago. In the South, pending home sales increased 0.8 percent to an index of 104.6 and is 8.2 percent above August 2008. In the West the index surged 16.0 percent to 130.5 and is 22.3 percent above a year ago.
There is likely to be some double counting over a span of several months because some buyers whose contracts were cancelled have found another home and signed a new contract to buy, Yun explained. Perhaps the real question is how many transactions are being delayed in the pipeline, and how many are being cancelled? Without historic precedents, it's challenging to assess.
Yun also noted that the data sample coverage for pending sales is smaller than the measurement for closed existing-home sales, so the two series will never match one for one.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said first-time buyers need to act now. Potential first-time buyers must make a contract offer very soon to have a reasonable chance of qualifying for the tax credit, he said. Congress needs to extend and expand this program because it's stimulating the economy and reducing inventory close to price stabilization points.
McMillan said a sizable number of homebuyers already in the pipeline could be let down because of the tight deadline. We know there is a pent-up demand because sales are below normal levels for the size of our population. The faster we absorb excess inventory, the sooner we'll turn the corner on home prices, prevent additional families from becoming upside-down in their mortgages, and give Wall Street the confidence to extend credit to other sectors, he said. Each home sale pumps an additional $63,000 into the economy through related goods and services, so the benefits of extending and expanding the tax credit far outweigh the costs.
Yun said the forecast for home sales and prices depends very much on whether a tax credit is extended. All we can say for certain is sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession, he said. Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit.