Housing Affordability Hits Record High and Pending Home Sales Are Up; Recovery is on Horizon, Says NAR
- Apr 02, 2009
By Anuradha Kher, Online News EditorWashington, D.C.–Pending home sales have edged up, hinting at a possible pickup of sales activity in coming months, according to the National Association of Realtors (NAR).The Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, rose 2.1 percent to 82.1 from a reading of 80.4 in January, but is 1.4 percent below February 2008 when it was 83.3. “There is a slight trend showing that people are beginning to realize that houses are a good buy right now,” Jed Smith, managing director of quantitative research at NAR, tells MHN. “The pending home sales are a reaction to affordability figures from January and February. In addition, interest rates are at a 50-year low. When you consider that more than 90 percent of the country is employed, it makes sense that people want to buy.”NAR’s Housing Affordability Index (HAI), which includes condos, rose 0.9 percentage points to a record high of 173.5 in February from an upwardly revised index of 172.6 in January, and is 36.3 percentage points higher than a year ago. The HAI, a broad measure of housing affordability using consistent values and assumptions over time, shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970. However, Lawrence Yun, NAR chief economist warns that the market is continuing to under-perform. “Pending home sales have a way to go for there to be a meaningful increase, but recent increases in shopping activity are hopeful indicators that we’ll see additional sales gains,” he says. “It will take a few months before we could see this turn up in measurable sales contract activity.” Smith says the latest unemployment figures are certainly not good news but “Employment lags the economy rather than leading it. We certainly are in the wake of a recession and happy days are not here yet, but things are starting to turn,” Smith tells MHN.The PHSI in the Northeast rose 10.6 percent to 63.9 in February but is 11.2 percent below a year ago. In the Midwest the index jumped 14.5 percent to 83.1 and is 3.4 percent higher than February 2008. The index in the South rose 4.4 percent to 85.8 in February but is 0.1 percent below a year ago. In the West the index fell 13.5 percent to 89.6 and is 1.7 percent below February 2008. “This is the time to buy, if you can and have the intention. Even the most pessimistic economists agree that a recovery is likely to happen by the second quarter of 2010 and that prices are going to be higher in five years,” says Smith. Last year at this time, the typical family could afford a home costing $265,600, which is $20,000 less than the current affordable price. “Homes in many areas are now selling for less than replacement construction costs – clearly this is an abnormal situation which will change once inventory is drawn down and supply and demand come closer into balance,” says NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. Yun says he expects housing inventories to rise through early summer from a normal seasonal pattern of more sellers appearing in the spring. “But with the positive housing stimulus incentives now in place, we expect home sales to gain momentum in the second half of the year with first-time buyers absorbing a lot of the excess inventory,” he says. “Under these conditions, we should see price stabilization in most markets by the end of the year.” “Recovery is coming,” concludes Smith.