Pending Home Sales Up, Existing Sales to Follow

After falling almost 8 percent in January, the activity of pending home sales reversed in February, rising 2.1 percent, according to data released by the National Association of Realtors Wednesday — indicating existing home sales will soon climb as well. Spurred by improved affordability and stimulus incentives, NAR said its Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, rose to 82.1 from a reading of 80.4 in January, but is 1.4 percent below February 2008 when it was 83.3. “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,” said Lawrence Yun, NAR chief economist. The PHSI in the Northeast rose 10.6 percent to 63.9 in February and is 11.2 percent below a year ago. In the Midwest, the index jumped 14.5 percent to 83.1 — 3.4 percent higher than February 2008. The index in the South rose 4.4 percent to 85.8 in February, while the index in the West fell 13.5 percent to 89.6, down 1.7 percent from February 2008. Pending home sales are reported when contracts are signed, and existing home sales are reported at the close of escrow. Therefore, the Pending Home Sales Index leads existing home sales by about 45 days, so the February report which shows a general uptick in pending home sales across the nation, suggests existing home sales are quite likely to rise in March and April. NAR’s Housing Affordability Index also improved, rising 0.9 percentage points to a record high of 173.5 in February from an upwardly revised index of 172.6 in January — which is all in all, reflective of near-record low mortgage rates. The HAI indicated a median-income family, earning $59,700, could afford a home costing $285,600 in February with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest; affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of that amount. A year ago, the typical family could afford a home costing $265,600, according to NAR. Write to Kelly Curran at kelly.curran@housingwire.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.