Pending Home Sales Inch Up in May; Four Months of Gains Not Seen Since 2004

By Inman News, Wednesday, July 1, 2009.

An index tracking pending sales of existing homes inched up a barely perceptible 0.1 percent from April to May, but it marked the first time the index has posted four consecutive monthly gains since October 2004, the National Association of Realtors said today.

At 90.7, the Pending Home Sales Index was up 6.7 percent from a year ago. An index of 100 is equal to the average level of contract activity during 2001, the year NAR launched the index and the first of five consecutive record years of existing-home sales.

The index posted the strongest monthly gain in the Northeast, rising 3.1 percent to 80.9, up 6.8 percent from a year ago. The West also saw a 2.2 percent increase in the index from April to May, to 96.9, down 0.7 percent from a year ago.

The index slipped 1.7 percent in the South from April to May, to 92.6, which is a 7.9 percent gain from a year ago. The Midwest saw a 1.3 percent monthly drop, to 89.2, up 11.4 percent from a year ago.

Some contracts signed in May might not close in the weeks ahead because new rules for appraisals are delaying or derailing transactions, NAR Chief Economist Lawrence Yun said.

The appraisal rules, which went into effect May 1 and apply only to loans to be purchased or guaranteed by Fannie Mae and Freddie Mac, are intended to protect appraisers from coercion.

NAR claims the rules have led to an increased reliance on appraisal management firms, which in some cases are using appraisers who are unfamiliar with a neighborhood or using distressed and discounted properties as comparable sales for nondistressed homes.

A spokesman for a trade association representing appraisers, the Appraisal Institute, has said falling home prices, not appraisers, are the reason appraisals are coming in lower than sales price in some markets.

Rep. Travis Childers, D-Miss., and Rep. Gary Miller, D-Calif., are sponsoring a bill, HR 3044, that would grant NAR’s request for an 18-month moratorium on implementation of the appraisal rules, known as the Home Valuation Code of Conduct. The bill, introduced June 25, has been referred to the House Committee on Financial Services.

Yun also raised the issue of appraisals when NAR released numbers on existing-home sales for May. Although existing-home sales picked up slightly, the 2.4 percent increase was less than would have been expected from a previous rise in pending sales, NAR said.

Today Yun said he expects existing-home sales to trend up through the end of the year, with the usual variations in local markets.

At 171.6, NAR’s Housing Affordability Index is near a historic high in records dating back to 1970. The affordability index takes into account median home prices, interest rates and median income. A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced existing single-family home. The higher the number, the better.

The index hit an all time high of 178.8 in April. While it retreated some in May, the typical family would still have needed to devote only 14.6 percent of gross income to mortgage principal and interest on the purchase of a median-priced home — one of the lowest percentages on record, NAR said.

A family earning $60,800 could afford a home costing $296,700 in May with a 20 percent down payment, assuming 25 percent of gross income were devoted to mortgage principal and interest, NAR said.

The latest market forecast released today by NAR anticipates a 10.1 percent drop in median resale home prices this year, followed by a 3.8 percent rise in 2010. The median price of new homes is forecast to drop 7.1 percent this year, rising 4.3 percent in 2010.

Also, the forecast calls for resale home sales to fall 0.6 percent this year, with a 5.7 percent rise anticipated in 2010. New single-family home sales, meanwhile, are forecast to drop 33.1 percent this year, and to rise 14.3 percent in 2010.