Home Sales Show Slight Improvement

While the real estate market remains fragile, and it's impossible to dismiss the possibility of a double-dip recession, there are some hopeful signs.

Pending home sales, the measure of sales contracts signed, but not ratified, in a given month, rose again in December, according to the National Association of Realtors. It's the fifth gain in the last six months, suggesting forward progress.

But when measured with the last 12 months, it shows there is still plenty of room for improvement. While the Pending Home Sale Index (PHSI) increased 2.0 percent over November's sales contracts, the index is still 4.2 percent below the December 2009 level.

The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Rates should remain low

"Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions," said Lawrence Yun, NAR's chief economist. "Mortgage rates should rise only modestly in the months ahead, so we'll continue to see a favorable environment for buyers with good credit."

Rates have been rising over the last two months, but remain under five percent for most consumers with good credit.

"In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time," Yun said. "That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory."

Yun said the latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-five million total annual home sales. However, sales above six million, as occurred during the bubble years, is highly unlikely this year, he said.

Regional breakdown

The PHSI in the Northeast increased 1.8 percent to 73.9 in December but is 5.3 percent below December 2009.

In the Midwest the index rose 8.0 percent in December to 84.6 but is 5.1 percent below a year ago.

Pending home sales in the South jumped 11.5 percent to an index of 101.9 and are 1.7 percent above December 2009.

In the West the index fell 13.2 percent to 105.8 and is 10.7 percent below a year ago.