Pending Home Sales Down, Outlook Up

As if to prove a point, data presented this week showed that pending home sales in December fell off a nearly two-year high and declined more than expected.
The Pending Home Sales Index (PHSI), which can predict future activity since it’s based on contract signings not closings, dropped 3.5 percent to 96.6 in December from 100.1 in November, according to the National Association of Realtors®.
Economists predicted a decline of no more than 1 percent.
hand signing a mortgage contract with a mini house in the backgroundDecember’s figures follow an October and November that saw a combined 18 percent increase in the number of people who signed contracts to buy homes. That marked the highest two-month period for contract activity since March and April of 2010, when the federal home buyer tax credit was on the table.
The news of the PHSI drop comes the day after President Barack Obama discussed the housing crisis in his State of the Union Address, proposing a new program that would allow up-to-date homeowners to refinance at historically low rates regardless of the value of their homes.
The plan “gives every responsible homeowner the chance to save about $3,000 a year on their mortgage,” said the President. “No more red tape. No more runaround from the banks.”
That plan, if it doesn’t meet with opposition from the Republican side, could help fight the drop in home values that is really impeding an economic turnaround, but will it help push more home buyers into taking the plunge?
After all, the red tape extends past refinancers. Home appraisals that come in under value and extremely tight lending conditions are stopping even interested buyers in investing in homeownership.
Lawrence Yun, NAR Chief Economist, remains optimistic.
“Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period,” he said. “Contract failures remain an issue, reported by one-third of Realtors® over the past few months, but home buyers are not giving up.
“Housing affordability conditions are too good to pass up. Our hope is lending conditions will gradually improve with sustained increases in closed existing-home sales.”
If you measure year-over-year results, it would appear that we are moving in the right direction: December’s PHSI may have fallen, but it is still 5.6 percent above the 91.5 it recorded in December 2010.
The regional Pending Home Sales Index for December:
*Midwest: The PHSI rose 4.0 percent to 95.3 and is 13.3 percent higher than December 2010.
*Northeast: The index fell 3.1 percent to 74.7 in December and is 0.8 percent below a year ago.
*South: The index dropped 2.6 percent to 101.1 in December but is 4.9 percent above a year ago.
*West: The index fell 11.0 percent in December to 107.9 but is 3.7 percent higher than December 2010.
To read more about President Obama’s housing plan, click Chicago Real Estate Forum.
To read more about the PHSI, visit