Pending Home Sales Up in Five of Last Six Months. Would You Buy?
The National Association of Realtors released the Pending Home Sales Index for December today.
The Pending Home Sales index measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes. Instead, when a seller accepts a sales contract on a property, it is recorded into a Multiple Listing Service (MLS) as a “pending home sale.” Once that transaction settles it becomes an Existing Home Sale. The majority of pending home sales become Existing Home Sales transactions, typically one to two months later.
Since pending home sales measure actual existing-home sales, the PHSI provides an accurate and reliable indicator of future home sales activity. Samples show that over 80% of all pending home sales go to settlement within a 2-month time-period (and a significant share of the rest close in month 3 and month 4). Not all pending home sales go to closing though. A certain percentage of properties that go under contract are cancelled (or fallout) before ever going to settlement. This percentage has been on the rise since early 2009. An index of 100 is equal to the average level of contract activity during 2001, the first year to be analyzed.
Here is a Reuters Quick Recap of the data...
RTRS-U.S. DEC PENDING HOME SALES INDEX +2.0 PCT (CONSENSUS +1.0 PCT) TO 93.7 - REALTORS
RTRS-U.S. DEC PENDING HOME SALES -4.2 PCT FROM DEC 2009
RTRS-TABLE-U.S. Dec pending home sales rose 2.0 pct
Excerpts from the Release....
Pending home sales improved further in December, marking the fifth gain in the past six months, according to the National Association of Realtors®
The Pending Home Sales Index, a forward-looking indicator, increased 2.0 percent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2 percent below the 97.8 mark in December 2009.
The PHSI in the Northeast increased 1.8 percent to 73.9 in December but is 5.3 percent below December 2009. In the Midwest the index rose 8.0 percent in December to 84.6 but is 5.1 percent below a year ago. Pending home sales in the South jumped 11.5 percent to an index of 101.9 and are 1.7 percent above December 2009. In the West the index fell 13.2 percent to 105.8 and is 10.7 percent below a year ago.
Lawrence Yun, NAR chief economist, credits good affordability conditions and economic improvement. “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions. Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favorable environment for buyers with good credit,” he said.
“In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory,” Yun said. “The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”
Lawrence Yun has his pom-poms out again. I agree, there are some areas where it's definitely worthwhile to consider taking advantage of excellent housing affordability levels, but that guidance certainly does not apply across the country to all housing markets. A recent quote I gave....
"Location location location" said MND's Managing Editor Adam Quinones when asked whether or not he would buy a home in this market. "Certain parts of the country are outperforming others. I would do much research on local markets after deciding on the region I wanted to live in though. Then I would avoid areas with an accumulation of similarly structured housing units. For example I would not purchase a townhouse or condo unless I was able to do so at a deep discount, I would be looking for a single-family home in an established neighborhoods with a proven school system. Otherwise, the deal would have to be too sweet to pass up to get my attention. There are opportunities to be taken advantage of, you just have to do your homework."
READ MORE: Home Prices Stuck in Negative Feedback Loop. Would You Buy?
Again I ask...
WOULD YOU BUY A HOME RIGHT NOW? IF SO, WHY? IF NO, WHY?