Gains Expected In Home Sales

Pending home sales have edged up, hinting at a possible pickup of sales activity in coming months, according to the ""National Association of Realtors"":http://www.realtor.org (NAR).
NAR's ""Pending Home Sales Index"":http://www.realtor.org/research/research/phsdata (PHSI), a forward-looking indicator based on contracts signed in February, rose 2.1 percent compared to January. The slight bump in monthly activity however, was not enough to offset a 1.4 percent annual decline in pending home sales for February. Also in February, NAR reported that housing affordability rose to a new high, representing the most favorable conditions for buying a home in more than three decades.
Lawrence Yun, NAR's chief economist, commented, ""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,"" Yun explained. ""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.""
NAR reported increases in pending home sales across most of the country, except in the West, were the index fell 13.5 percent from January's numbers. The PHSI in the Northeast rose 10.6 percent in February. In the Midwest the index jumped 14.5 percent, and in the South it is up 4.4 percent, compared to January.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, commented that home buyers are now in an excellent position to move forward with purchases. ""The drop in mortgage interest rates and home prices mean the buying power of a typical family has never been better,"" McMillan 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.""
Illustrating this ideal environment for home buyers, NAR’s ""Housing Affordability Index"":http://www.realtor.org/research/research/housinginx (HAI) rose 0.9 percentage points to a record high in February, and is 36.3 percentage points higher than it was 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.
NAR explained that 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 association said. The affordable price is considerably higher than the median home price in February reported by NAR, which was only $164,600.
Last year at this time, NAR said, 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 explained.
Yun added that he expects housing inventories to rise through early summer from the normal spring seasonal pattern. ""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,"" Yun said. ""Under these conditions, we should see price stabilization in most markets by the end of the year.""