Pending Home Sales Up For Fourth Month

According to new figures released by the ""National Association of Realtors"":http://www.realtor.org (NAR), pending home sales show a sustained uptrend, rising for four consecutive months. NAR says more affordable conditions for purchasing a home and the first-time buyer tax credit have boosted activity.
NAR’s ""Pending Home Sales Index"":http://www.realtor.org/research/research/phsdata, a forward-looking indicator based on contracts signed in May, increased 0.1 percent from April, and is 6.7 percent higher than May 2008. The last time NAR recorded four consecutive monthly gains in expected home sales was in October 2004.
However, Lawrence Yun, NAR’s chief economist, cautions that there could be delays in the number of contracts that actually go to closing, remarking on the controversy surrounding appraisal practices and the GSEs’ new Home Valuation Code of Conduct (HVCC) that has taken center stage lately.
""Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,"" Yun said. ""Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.""
According to NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, the appraisal issue is complicated. ""We see that distressed homes often are selling for 20 percent less than normal homes in the same area, but some appraisals don’t distinguish between traditional homes and distressed property,"" he said. ""In many cases appraisers from outside the area are being used, but as everyone knows real estate is local and appraisals should be done by an expert with local expertise.""
On a regional basis, NAR reported that the Pending Home Sales Index in the Northeast rose 3.1 percent in May and is 6.8 percent above a year ago. In the Midwest the index slipped 1.3 percent but is 11.4 percent above May 2008. The index in the South declined 1.7 percent for the month but is still 7.9 percent higher than a year ago. In the West the index rose 2.2 percent and is 0.7 percent above May 2008.
NAR’s latest figures also show that ""housing affordability"":http://www.realtor.org/research/research/housinginx is still historically high. Yun explained that under current conditions the typical homebuyer would devote only 14.6 percent of gross income to mortgage principal and interest, one of the lowest commitment levels on record. The first-time buyer tax credit also is benefiting the market.
Yun added, ""Strong activity by entry level buyers is helping to absorb inventory and allow some existing owners to make a trade.""
Yun predicts that existing-home sales should trend up through the end of the year, with normal local market differences. ""The big question is how much the appraisal issue will impact the ability of contracts to go to closing,"" Yun said, adding that the NAR is currently conducting a study to assess the degree to which new appraisal rules are impacting home sales.