January 7, 2010
Contract activity for pending home sales fell after a surge of activity in preceding months to beat the original deadline for the first-time home buyer tax credit but remains comfortably above a year ago, according to the National Association of Realtors®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November 2009, fell 16.0% to 96.0 from an upwardly revised 114.3 in October, but is 15.5% higher than November 2008 when it was 83.1.
Lawrence Yun, NAR chief economist, said a drop was expected. “It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit,” he said. “The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.”
Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for the tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.
The PHSI in the Northeast dropped 25.7% to 74.4 in November but is 14.7% above a year ago. In the Midwest the index fell 25.7% to 82.0 but is 9.2% higher than November 2008. Pending home sales in the South fell 15.0% to an index of 97.8, but are 14.7% higher than a year ago. In the West the index declined 2.7% to 124.6 but is 21.4% above November 2008.
Yun projects an additional 900,000 first-time buyers will qualify for the extended tax credit in addition to about 2 million who have already purchased; 1.5 million repeat buyers also are expected to benefit from the credit. “Many trade-up buyers, who have historically timed their purchase based on school-year considerations, will have to accelerate their buying plans if they need the tax credit to make a trade,” Yun said. Repeat buyers do not have to sell their existing home to qualify for the credit, but they must occupy the home they buy as their primary residence.
Yun added that mortgage interest rates cannot remain at rock-bottom levels for a sustained period and will likely inch higher in 2010. But the tax credit impact in the first half of the year and expected job growth impact in the second half will support home buying activity and absorb enough inventory to bring a rough balance between buyers and sellers. Home prices are expected to stabilize or even modestly rise as a result in 2010.