January 5, 2010
The latest
indicator on the health of the housing market is not encouraging, but is
also not unexpected. Pending Home Sales plunged in November after rising
sharply in October, according to the National Association of Realtors.
Pending home sales, reflecting the sales contracts signed but not yet closed, fell 16 percent from October, but was still 15.5 percent higher than November 2008.
The drop off was expected because, up until mid November, the first-time home buyers tax credit was set to expire at the end of the month. Buyers hoping to take advantage of the windfall hurried to complete their deals in October and early November.
As it turns out, Congress extended the tax credit another six months, and even expanded it. But it may take some time for its effects to show up in sales numbers.
"It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit," said Lawrence Yun, NAR's chief economist. "The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires."
Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for the tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.
Sales Pace Still Better Than 2008
The Pending Home Sales Index in the Northeast dropped 25.7 percent to 74.4 in November but is 14.7 percent above a year ago. In the Midwest the index fell 25.7 percent to 82.0 but is 9.2 percent higher than November 2008. Pending home sales in the South fell 15.0 percent to an index of 97.8, but are 14.7 percent higher than a year ago. In the West the index declined 2.7 percent to 124.6 but is 21.4 percent above November 2008.
Yun projects an additional 900,000 first-time buyers will qualify for the extended tax credit in addition to about 2 million who have already purchased; 1.5 million repeat buyers also are expected to benefit from the credit.
"Many trade-up buyers, who have historically timed their purchase based on school-year considerations, will have to accelerate their buying plans if they need the tax credit to make a trade," Yun said. Repeat buyers do not have to sell their existing home to qualify for the credit, but they must occupy the home they buy as their primary residence.
Yun added that mortgage interest rates cannot remain at rock-bottom levels for a sustained period and will likely inch higher in 2010. But the tax credit impact in the first half of the year and expected job growth impact in the second half will support home buying activity and absorb enough inventory to bring a rough balance between buyers and sellers. Home prices are expected to stabilize or even modestly rise as a result in 2010.
