May 4, 2009
Near record low interest rates and bargain basement home prices
apparently trump recession fears. The evidence is visible in the March
Pending Home Sale Index, which rose 3.2 percent from February.
Pending homes sales, measured by the National Association of Realtors, accounts for consumers who signed contracts to purchase a home in a given month. The sales normally close within 60 days.
After months of declines, the March turnout could signal new life in the beleaguered housing market.
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 downpayment, said Lawrence Yun, NAR chief economist. We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around.
NAR said its 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 index 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 downpayment, 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 downpayments 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.
