Pending Home Sales Show Healthy Gain

According to a new report released by the ""National Association of Realtors"":http://www.realtor.org (NAR) this week, pending home sales increased at the end of 2008, as more buyers took advantage of improved affordability conditions. The hopeful outlook comes from big gains in the South and Midwest, which offset modest declines in other regions.
On a national scale, NAR's ""Pending Home Sales Index"":http://www.realtor.org/research/research/phsdata (PHSI), a forward-looking indicator based on contracts signed in December, rose 6.3 percent from November, and is 2.1 percent higher than in December 2007. The association’s ""Housing Affordability Index"":http://www.realtor.org/research/research/housinginx (HAI) jumped 10.9 percent in December of last year to 158.8. This figure is the highest HAI on record, meaning that the relationship between home prices, mortgage interest rates, and family income is the most favorable since NAR began tracking affordability in 1970.
Lawrence Yun, NAR chief economist, explained that the biggest gains in pending home sales were in areas with the biggest improvements in affordability. However, Yun cautioned that significant uncertainty still clouds the housing market despite improved affordability conditions. ""For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers,"" Yun said.
As far as the regional numbers go, the PHSI in the Northeast slipped 1.7 percent in December and is 14.5 percent below a year ago. And in the West, the index fell 3.7 percent for the month but remains 17.5 percent higher than December 2007.
These monthly declines were countered in the Midwest, where the index jumped 12.8 percent from November to December (still 1.2 percent below December 2007), and in the South, where the PHSI surged 13.0 percent (raising it to 1.6 percent above a year ago).
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the rise in contract signings is encouraging. McMillan added, however, ""Housing activity remains weak compared with potential demand, and the market is fragile given the economic backdrop.
""We can’t take our eye off the need to stimulate housing, which can set the foundation for an economic recovery,"" McMillan continued. He noted that recent actions by Congressional leaders, such as eliminating the repayment feature on the first-time home buyer tax credit, and raising mortgage loan limits, are helpful, but that additional steps are still needed to meaningfully draw down inventory and stabilize home prices.
Yun said the outlook for housing and the economy is murky. ""Although Congress and the Obama administration are taking steps to help the economy, the stimulus package must deal with the root cause of the economic downturn, and apply the right fix to turn it around. If housing is ignored, a significant downward overshooting of home prices would continue to drag the economy down independent of the scale of the stimulus,"" Yun said.