Pending Home Sales Stabilize

Pending home sales have leveled from a market swing driven by response to the home buyer tax credit, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in December, increased 1.0% to 96.6 from 95.6 in November, and is 10.9% above December 2008 when it was 87.1. In November, the monthly index had fallen by 16.4% from surging activity in preceding months.

Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for a tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

The PHSI in the Northeast rose 2.3% to 76.1 in December and is 14.9% higher than December 2008. In the Midwest the index increased 5.2% to 86.9 and is 8.7% above a year ago. Pending home sales in the South rose 2.2% to an index of 98.4, and are 5.5% higher than December 2008. In the West the index fell 3.8% to 119.9 but is 18.6% above a year ago.

The extended and expanded tax credit could encourage 2.4 million households to take the credit in 2010. New-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010. Last year there were 5.16 million existing-home sales.

One of the greatest benefits of rising sales will be firming home prices. For months we’ve been seeing stabilization in all of the home price measures as inventory is pulled down. As a result, the housing wealth for many middle class families has begun to stabilize.