Pending Home Sales Fall; Economic Outlook Depends Heavily on Stimulus, Says NAR

By Erika Schnitzer, Associate EditorWashington, D.C.—In the wake of the economic downturn, pending home sales have declined, according to the National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI).The Index, which is based on contracts for condos and single-family homes signed in November, fell 4 percent, to 82.3, from the month before. It is down 5.3 percent from November 2007.According to NAR’s findings, the seasonally adjusted Northeastern home sales have declined the most—7.2 percent—when compared to last month’s figures. The Midwestern region was down 6.7 percent, with the Southern and Western regions down 2.2 percent and 2.4 percent, respectively. A year-over-year analysis of the Northeast’s PHSI shows a 14.6 percent drop, with the Midwest falling 10.1 percent and the South declining 12.7 percent. The West remains 19.3 percent higher than from November 2007.“FHA is stepping up to the plate for first-time home buyers, but we have serious confidence issues and job losses, and there is a natural tendency to pull back from big purchases,” Walter Molony, a spokesman for NAR, tells MHN. However, he notes that affordability conditions, combined with falling mortgage rates, could help to level out or even improve the number of sales.An economic outlook reveals that the number of existing home sales could begin to increase in early 2009, while housing starts may begin to pick up in 3Q of 2009. Multifamily construction is projected to bottom out in 4Q of 2008, with a modest pick up and leveling out through the year, explains Molony. However, Molony cautions, “We aren’t looking for a significant improvement in multifamily construction for a while, because there is so much inventory. The condo sector as a whole is oversupplied nationally, more so than the single-family side, so it will take longer for multifamily to recover.”The outlook, however, depends on the new administration’s stimulus package. Like the National Association of Home Builders, NAR is advocating for the stimulus to include a $7,500 tax credit for all home buyers, without repayment, and in high-cost areas, the raising of loan limits to bring down interest rates.“If we have an aggressive housing stimulus, then we would foresee home sales rising by more than 10 percent. That would stabilize home prices in most of the country, which is what we need to stabilize the economy,” says Molony adds. In turn, he says, this would “lessen foreclosures and give home owners confidence, which would help the economy to recover. You cannot have economic recovery without housing recovery. We need to bring buyers back to the market to soak up the inventory to stabilize pricing.”He adds, “If we see a short-term aggressive stimulus, we could see sales rising at a comfortable pace this spring, but the timing is very murky and there are a lot of extenuating circumstances. We are in a fragile but unique environment [in terms of] affordability. If you get the right stimulus to move buyers, that could start a positive chain reaction.”