Real Estate Picture Improves Slightly in August

For the second straight month, pending home sales are up, according to the National Association of Realtors.

The Pending Home Sales Index rose 4.3 percent to 82.3 based on contracts signed in August from a downwardly revised 78.9 in July, but is 20.1 percent below August 2009 when it was 103.0. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

The data suggests that demand is returning with buyers drawn to the market by the lure of bargains.

"Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,"said Lawrence Yun, NAR's chief economist. "However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence."

The numbers show a decline in contracts in the Northeast but increases in most other regions. The biggest increase came in south, where the Index rose 6.7 percent to an index of 90.8. However, pending sales are sharply lower in all areas of the country when compared to August 2009.

Although Yun expects a continuing steady rise in home sales from favorable affordability conditions and some job creation, he cautioned any sudden rise in mortgage rates could slow the recovery.

"Current low consumer price inflation has helped keep mortgage interest rates very attractive this year. However, recent rising trends in producer prices at the intermediate and early stages of production, along with very high commodity prices, are raising concerns about future inflation and future mortgage interest rates," he said. "Higher inflation would mean higher mortgage interest rates. In the meantime, housing affordability is hovering near record highs."

By any measure, the nation's housing market has gotten weaker in 2010. Real estate analysts say its clear the first-time homebuyers' tax credit, later expanded to include those who had previously purchased homes, pushed sales higher last year.

For the housing market to fully recover, real estate analysts say the glut of inventory must fall, interest rates must remain low, and buyers must be able to qualify for mortgages.