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Pending Home Sales Rise in December

Light at the end of the housing market tunnel?

By Mark Huffman
ConsumerAffairs.com

February 3, 2009

Big gains in the South and Midwest offset modest declines in other regions.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in December, rose 6.3 percent to 87.7 from an upwardly revised reading of 82.5 in November, and is 2.1 percent higher than December 2007 when it was 85.9.

"The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month," said Lawrence Yun, NAR chief economist. "The biggest gains were in areas with the biggest improvements in affordability."

NAR's Housing Affordability index rose 10.9 percent in December to 158.8, the highest on record. The HAI shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970.

"Significant uncertainty still clouds the housing market despite improved affordability conditions. For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers," Yun said.

The PHSI in the Northeast slipped 1.7 percent to 62.1 in December and is 14.5 percent below a year ago. In the Midwest the index jumped 12.8 percent to 83.7 but remains 1.2 percent below December 2007. The index in the South surged 13.0 percent to 96.8 in December and is 1.6 percent above a year ago. In the West, the index fell 3.7 percent to 97.5 but remains 17.5 percent higher than December 2007.

"We can't take our eye off the need to stimulate housing, which can set the foundation for an economic recovery," said NAR President Charles McMillan said. "Last week's actions in the House to eliminate the repayment feature on the first-time home buyer tax credit, and to raise mortgage loan limits, are helpful. However, we need to take additional steps to meaningfully draw down inventory and stabilize home prices."

McMillan said some enhancements that could bring more buyers into the market include expanding the $7,500 tax credit to all home buyers and extending it until the end of 2009, and making loan limit increases permanent.

"We also need to direct funds in the Troubled Asset Relief Program to add liquidity to the mortgage market, buy down mortgage interest rates and increase other forms of credit," he said.

Yun said the outlook for housing and the economy is murky.

"Although Congress and the Obama administration are taking steps to help the economy, the stimulus package must deal with the root cause of the economic downturn, and apply the right fix to turn it around. If housing is ignored, a significant downward overshooting of home prices would continue to drag the economy down independent of the scale of the stimulus," Yun said.

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