NAR: Home Sales Down on Tight Credit and Economic Slowdown

Pending home sales in September fell on the heels of a strong gain a month earlier as credit tightened and economic conditions deteriorated, according to the ""National Association of Realtors"":http://www.realtor.org (NAR). The association released its ""Pending Home Sales Index"":http://www.realtor.org/press_room/news_releases/2008/phs_down_on_tight_credit (PHSI) today, which is a forward-looking indicator based on contracts signed in September. The national September index declined 4.6 percent from August figures, but is 1.6 percent higher than in September 2007.
Lawrence Yun, NAR's chief economist, noted that pending sales have been above year-ago levels for two months in a row now. ""The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we’re still in a broad period of stabilization,"" he said.
According to Yun, market conditions remain mixed around the country, but some regions are showing annual sales gains. These markets include Long Island, Boston, Minneapolis, Denver, and Washington, D.C., in addition to consistent solid gains in California and Florida.
The PHSI in the West rose 3.7 percent in September and remains 39.5 percent above a year ago, based on NAR's figures. In the Midwest the index slipped 0.7 percent, 3.1 percent below September 2007. The September index in the South fell 7.9 percent and is 11.3 percent below a year ago. In the Northeast, it dropped 16.8 percent and is 9.4 percent below September of last year.
Yun projects home sales to recover in the latter part of 2009. Looking at middle-ground assumptions, existing-home sales are expected to total 5.02 million in 2008, rising to 5.32 million next year and 5.62 million in 2010, NAR said in its report.
""The depth of the recession depends entirely on housing - with sufficient housing stimulus, the recession will be shallow,"" Yun said. ""If government actions stay focused on housing, the cost to the Treasury would be much less than the potential losses in the nation’s output and income in a severe recession.""
NAR estimates by the end of 2008, home prices will have fallen by more than 20 percent in Las Vegas, Phoenix, and many California and Florida markets, while many markets in middle America will experience little change. Wide variations in home price movements will continue in 2009, the association said, with Houston and Denver likely to see respectable price gains while most other markets experience no notable change.
New-home sales are likely to total around 487,000 this year and 413,000 in 2009 before rising to 520,000 in 2010, NAR said. Housing starts, including multifamily units, will drop from 936,000 units in 2008 to 781,000 next year, then rise again in 2010, the association projects. ""Housing construction won’t improve before existing-home sales recover and inventory conditions become more balanced,"" Yun said.
Looking at mortgage rates estimates, NAR said the 30-year fixed-rate mortgage should average 6.2 percent in the fourth quarter, rise gradually to 6.5 percent during the second half of 2009 and then average 6.7 percent in 2010. NAR’s housing affordability index is averaging 19 percentage points higher this year than in 2007, but is estimated to ease modestly in 2009.
For additional information on NAR's PHSI and housing projections, ""click here"":http://www.realtor.org/press_room/news_releases/2008/phs_down_on_tight_credit.