November 2, 2009
The number of people signing contracts to buy homes posted a big gain in September, sending a hopeful signal that buyers may be returning to the marketplace.
The National Association of Realtors' Pending Home Sales Index rose 6.1 percent over the previous month. But in a more hopeful sign, the index was up 21.2 percent over September 2008 -- the largest year-over-year gain on record.
But just as the government's Cash for Clunkers Program spurred auto sales in August, the government's first time homebuyers tax credit - set to expire at the end of this month -- may have been responsible for much of the momentum.
"What we're witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month," said Lawrence Yun, NAR's chief economist. "Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery."
NAR estimates approximately 3 million renters are now financially well-qualified to buy a median-priced home. That, he says, could help sustain the modest housing rally.
"As long as buyers do not overstretch and stay well within their budget, a sizable pent-up demand can be tapped among financially qualified potential buyers," Yun said. "Although the tax credit is greatly reviving the existing home market, new-home sales may continue to struggle as home builders hold back production to drive down inventory. In addition, there remains an ongoing credit crunch for construction loans."
The Pending Home Sales Index in the Northeast slipped 2.0 percent to 83.6 in September but remains 16.9 percent above September 2008. In the Midwest the index rose 8.1 percent to 98.2 in September and is 17.8 percent higher than a year ago. In the South, pending home sales increased 4.9 percent to an index of 109.7 and is 22.8 percent above September 2008. In the West the index jumped 10.2 percent to 143.8 and is 23.7 percent above a year ago.
"We're clearly not out of the woods because an excess of homes remains on the market despite recent improvements," Yun said. "Although current inventory is getting closer to price equilibrium, foreclosures will continue to enter the pipeline. An extended and expanded tax credit would help absorb this incoming inventory."
