January 28, 2011 (Jeff Alan)
Future home sales look a little brighter according to the National Association of Realtors (NAR) whose Pending Home Sales Index (PHSI) for December rose 2 percent from the previous month and is the fifth gain in the last six months.

NAR said its pending home sales index, which is based on contracts signed as opposed to closings, increased to 93.7 last month up from a downwardly revised 91.9 for November and down from 97.8 for December 2009. NAR says this forward-looking indicator typically signals where existing-home sales levels should be within one or two months.

Lawrence Yun, NAR’s chief economist, credits high affordability conditions and overall economic improvement for the steady increases.

“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,” Yun said.

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.

According to Yun, mortgage rates should rise only modestly in the months ahead, so conditions should remain favorable for buyers with good credit. He also says stable home prices should continue into 2011 as long as there is sufficient demand to absorb inventory.

“The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales,” Yun said. “However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”

Tags: NAR, pending home sales, homesales index, economic recovery, labor market, mortgage rates, housing affordability, improving economy