Low prices, low interest rates and an $8,000 tax credit for first-time home buyers helped push Pending sales of previously owned U.S. homes up by 6.7% in April. This was the third straight monthly increase, the fourth increase in five months, and the largest jump since October 2001 according to the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in April, rose to 90.3 from a reading of 84.6 in March, and is 3.2 percent above April 2008 when it was 87.5. This report was quite a surprise to many as Pending Sales was expected to only increase 0.5%.
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“The market is crawling back and maybe the turn is here,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, whose projected 4 percent gain was the highest in a Bloomberg survey. “Foreclosures are moving through the system and that is a fundamental part of the process of restoring equilibrium in the housing market.”
Lawrence Yun, NAR chief economist, said buyers are responding to very favorable market conditions. “Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” he said. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.” (More about this HERE.)
Regional Breakdown:
Northeast shot up 32.6% to 78.9 in April and is 0.8% above a year ago.
Midwest rose 9.8% to 90.4 and is 11.1% above April 2008.
South slipped 0.2% to 93.0 in April but is 3.5% higher than a year ago.
West rose 1.8% to 94.8 but is 2.9% below April 2008.
Sales gains have been most pronounced in areas such as California and Florida where foreclosures have surged, indicating the drop in prices is stimulating demand.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said there are numerous buyer assistance programs around the country. “Just last week, HUD announced that qualifying buyers can use the tax credit for closing costs on FHA loans, to buy down the interest rate or make a larger downpayment. Some states are offering bridge loans that allow first-time buyers to use the tax credit for downpayment and closing costs, but there are many other local government and nonprofit programs available to buyers, depending on location,” he said.
NAR’s Housing Affordability Index is in record territory. The affordability index rose to 174.8 in April from an upwardly revised 171.9 in March, and was the second highest monthly reading on record after peaking at 176.9 in January of this year. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.
A median-income family, earning $60,900, could afford a home costing $296,800 in April with a 20% downpayment, assuming 25% 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% of that amount. The affordable price was well above the median existing single-family home price in April, which was $169,800.
The average rate on a 30-year fixed mortgage climbed to 4.91 percent last week, according to figures from Freddie Mac. The rate had reached a record-low 4.78 percent in April.
The total number of existing-home sales (Last Report Here, Next Report due June 23rd) is expected to improve but with dramatic local market variation in the timing of recovery. “The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish,” Yun said.
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