September 2, 2010
Following a sharp drop in the months immediately after expiration of the home buyer tax credit, pending home sales have modestly risen, according to the National Association of Realtors (NAR).

The Pending Home Sales Index (PHSI), which is based on pending sales of existing homes, rose 5.2 percent -- to 79.4 based on contracts signed in July. The June figure was revised downward to 75.5 , but remains 19.1 percent below July 2009 when it was 98.1.

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

Long road ahead

Lawrence Yun, NAR chief economist, cautioned that there would be a long recovery process. "Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery," he said. "But the recovery looks to be a long process. For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity."

Yun believes affordability could reach a generational high in the second half of this year because of rock-bottom mortgage interest rates, helped partly by the Fed's very accommodative monetary policy. "The loan underwriting standards are tighter, but home buyers can improve their chances of getting a loan by staying well within their budget," he noted.

Regional breakdown

The PHSI in the Northeast rose 6.3 percent -- to 62.5 in July, but is 21.1 percent below a year ago. In the Midwest the index increased 4.1 percent -- to 66.7, but remains 25.7 percent below July 2009. Pending home sales in the South rose 1.2 percent to an index of 86.3, but are 15.6 percent lower than a year ago. In the West the index jumped 11.6 percent to 95.0, but is 17.6 percent below July 2009.

The national index had fallen 29.9 percent in May and another 2.8 percent in June.

The PHSI rounds out a series of reports on the housing market. Late last month, NAR reported a drop in existing home sales for July. And the government reported sales of new homes sank July to the lowest point since government started keeping records in 1963.