Real Estate Industry Ending Year Cautiously Optimistic

In a year when home prices sank ever lower and foreclosures continued to take homes, there is a small bit of good housing news as 2011 draws to a close.

Pending home sales - a measure of sales contracts signed but not yet closed - rose again in November, reaching the highest level in 19 months, according to the National Association of Realtors (NAR). The problem is, these days a lot can happen between the time a contract is signed and when it closes, and most of it isn't good.

Lately, contract cancellations have been running abnormally high, meaning these contracts don't actually translate into sold homes. Contracts fall through for a number of reasons, including the buyer failing to qualify for a mortgage or the home failing to appraise for the sale price.

“Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high," said NAR chief economist Lawrence Yun. "Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”

Encouraging sign

Even so, Yun said that, in itself, is an encouraging sign, and he points out that November is doing reasonably well in comparison with 2010.

“The sustained rise in contract activity suggests that closed existing-home sales, which are the important final economic impact figures, should continue to improve in the months ahead,” Yun said.

On a regional breakdown, contract activity increased the most in the west, where pending sales were up 14.9 percent. The Northeast saw an 8.1 percent rise. The Pending Home Sale Index rose 4.3 percent in the south and 3.3 percent in the Midwest.

The rise in pending sales coincides with Novembers increase in both new and existing home sales. NAR reported last week that existing home sales increased 4.0 percent in November. The Commerce Department reported new home sales were up 1.6 percent for the month.

This meager good news comes in spite of continued difficulty many would-be buyers face in trying to obtain a mortgage. And rates have never been lower.

Freddie Mac reports the average rate on a 30-year fixed rate mortgage this week was 3.95 percent, the ninth straight week the average has remained below four percent. Despite that, applications for mortgages fell in the latest week tracked by the Mortgage Bankers Association.