Pending home sales in January reached a level last seen at the height of the homebuyer tax credit bubble nearly two years ago according to information released this morning by the National Association of Realtors® (NAR,) and its chief economist made some optimistic predictions for the future. The Pending Home Sales Index rose 2.0 percent to 97.0 compared to the revised December number and is 8.0 higher than one year earlier when it was 89.8. December's number had originally been estimated at 96.6 but was revised down to 95.1 with this release.
The Index is a forward looking indicator based on contracts for home purchases that have been signed but where the transaction has not closed. It is generally expected that pending sales will be finalized within two months.
The January number is the highest for the index since April 2010 when buyers were rushing to take advantage of the home buyer tax credit. That month the Index reached 111.3.
NAR chief economist Lawrence Yun said this is a hopeful indicator going into the spring home-buying season. "Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations."
While acknowledging that the movement of the index has been uneven, due mainly to tight credit, Yun said, "job gains, high affordability and rising rents are hopefully pushing the market into what appears to be a sustained housing recovery. If and when credit availability conditions return to normal, home sales will likely get a 15 percent boost, speed up the home-price recovery, and thereby significantly reduce the number of homeowners who are underwater."
On a regional basis the Index for the Northeast was 78.2, an increase of 7.6 percent over December and 9.8 percent from one year earlier. Pending Sales in the South rose 7.7 percent to 109.1, 10.5 percent higher than the previous year. The Index in the Midwest was down 3.8 percent to 88.1 but increased on an annual basis by 10.8 percent and in the West there was a decrease of 4.4 percent in January to 101.9, 0.7 percent higher than in January 2011.
The Pending Home Sale Index is based on a national sample, typically representing about 20 percent of transactions for existing-home sales. 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, thus it coincides with a level that is historically healthy.