Pending Home Sales Rise, Housing Affordability Near Record

Pending home sales rose with many first-time buyers taking advantage of historically good housing affordability conditions, according to the National Association of Realtors®.

The Pending Home Sales Index is a forward-looking indicator based on contracts signed in March, increased 3.2 percent to 84.6 from a level of 82.0 in February, and is 1.1 percent higher than March 2008 when it was 83.7.

NAR’s chief economist said it should take a few months for the market to gain momentum. “This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down-payment,” he said. “We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around.”

NAR’s Housing Affordability Index remained near record highs. The affordability index was 166.7 in March – down from an upwardly revised record of 174.4 in February due to higher home prices in March. The index remains 30.8 percentage points higher than a year ago. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.

The Pending Home Sales Index in the South rose 8.5 percent to 93.2 in March and is 7.7 percent above a year ago. In the West the index increased 3.9 percent to 93.1 and is 1.7 percent higher than March 2008. The index in the Northeast fell 5.7 percent to 59.5 in March and is 24.1 percent below a year ago. In the Midwest the index slipped 1.0 percent to 82.3 but is 8.2 percent higher than March 2008.

A median-income family, earning $61,100, could afford a home costing $291,600 in March with a 20 percent down-payment, assuming 25 percent of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small down-payments are roughly 80 percent of that amount. The affordable price was notably higher than the median existing single-family home price in March, which was $174,900.

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