Pending Home Sales Slump in November

Pending home sales fell sharply in November but remained "comfortably" above the level of activity from a year ago, the National Association of Realtors reported today. The index used to measure contracts signed in November fell 16% to 96.0 from an upwardly revised 114.3 in October, but is 15.5% higher than November 2008 when it was 83.1.

The slide in pending contracts comes after a strong surge in previous months when buyers scrambled to beat the original deadline for the first-time home buyer's tax credit. The home buyer's credit has been extended and expanded to include repeat buyers.

To qualify for the home-buyer's tax credit, home buyers must have a contract in place by April 30, 2010 and the deal must be finalized by June 30, 2010. The amount of the tax credit is 10% of the purchase price, up to $8000 for first-time buyers and up to $6500 for repeat buyers. You are considered to be a first-time buyer if you or your spouse have not owned a home in the past three years.

Lawrence Yun, NAR chief economist, said that another surge in the spring is expected as more buyers take advantage of affordable market conditions before the credit expires. "The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own," he said.

Yun projects an additional 900,000 first-time buyers will qualify for the extended tax credit in addition to about 2 million who have already purchased; 1.5 million repeat buyers also are expected to benefit from the credit.

Home buyers with families tend to purchase in the summer to make transitioning to a new school easier on the kids. "Many trade-up buyers, who have historically timed their purchase based on school-year considerations, will have to accelerate their buying plans if they need the tax credit to make a trade," Yun said.

Repeat buyers do not have to sell their existing home to qualify for the credit, but they must occupy the home they buy as their primary residence.

Yun added that mortgage interest rates cannot remain at rock-bottom levels for a sustained period and will likely inch higher in 2010. But the tax credit impact in the first half of the year and expected job growth impact in the second half will support home buying activity and absorb enough inventory to bring a rough balance between buyers and sellers. Home prices are expected to stabilize or even modestly rise as a result in 2010.

Regionally, pending home sales in the Northeast fell 25.7% to an index reading of 74.4, sitting 14.7% above the reading from a year ago. The index in the Midwest fell 25.7% to 82.0 and is 9.2% above the reading from November 2008. In the South, pending home sales fell 15% to an index of 97.8, 14.7% higher than it was a year ago. The index in the West only declined 2.7% to an index reading of 124.6, and is 21.4% above the index from a year ago.


Source:
National Association of Realtors