Pending home sales on an upswing

Pending home sales on an upswing

WASHINGTON – May 4, 2010 – Pending home sales increased again in March, affirming that a surge of home sales is unfolding for the spring homebuying season, according to the National Association of Realtors^® (NAR).

NAR's Pending Home Sales Index (PHSI) a forward-looking indicator based on contracts signed in March, rose 5.3 percent to 102.9 from 97.7 in February, and is 21.1 percent above March 2009 when it was 85.0; this follows an 8.3 percent increase in February. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, says favorable affordability conditions have been working with the tax credit. "Clearly the home buyer tax credit has helped stabilize the market. In the months immediately following the expiration of the tax credit, we expect measurably lower sales," he says. "Later, in the second half of the year and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and a return of buyer demand as they see home values stabilizing."

The PHSI in the Northeast declined 3.3 percent to 75.1 in March but remains 27.2 percent higher than March 2009. In the Midwest the index increased 1.2 percent to 98.9 and is 18.5 percent above a year ago.

Pending home sales in the South jumped 12.7 percent to an index of 121.2, which is 28.3 percent higher than March 2009. In the West the index rose 1.9 percent to 99.9 and is 8.8 percent above a year ago.

"Another encouraging sign is the improvement in the availability for jumbo and second-home mortgages," Yun says. "As bank balance sheets strengthen, it is just a matter of time before lending of non-government-backed mortgages steadily opens up."

The PHSI is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

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