Pending Home Sales Down But Housing Affordability At Record

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(WASHINGTON, D.C.) -- Pending home sales declined on the heels of a weakening economy and with some buyers waiting for clarity on housing stimulus provisions, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, fell 7.7 percent to 80.4 from a downwardly revised reading of 87.1 in December, and is 6.4 percent below January 2008 when it was 85.9.  The index is at the lowest level since tracking began in 2001, when the index value was set at 100.

Lawrence Yun, NAR chief economist, said the downturn in the economy also weighed heavily on the data.  "Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales," he said.   "We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit."  

The PHSI in the Northeast dropped 12.7 percent to 57.8 in January and is 19.7 percent below a year ago.  In the Midwest the index declined 9.2 percent to 72.6 and is 13.8 percent below January 2008.  The index in the South fell 11.9 percent to 82.2 in January and is 9.1 percent below a year ago.  In the West the index rose 2.4 percent to 103.6 and is 13.5 percent higher than January 2008.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said it's ironic with the weak housing market that affordability conditions have improved dramatically.  "Housing affordability is at a record high - the buying power of a typical family has risen significantly," he said.  "With the drop in interest rates, a median-income family can afford a home costing $20,000 more than a year ago for the same monthly mortgage payment.  With the strong housing stimulus, we are hopeful inventory will get trimmed, which will help prices to stabilize in many areas by the end of this year."

NAR's Housing Affordability Index rose 13.6 percentage points in January to 166.8, a new record high.2  The HAI, a broad index of affordability using consistent values and assumptions over time, shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970.

The HAI indicates a median-income family, earning $59,800, could afford a home costing $283,400 in January 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.  A year ago, the typical family could afford a home costing $263,300.

Yun added, "Conditions have been aligning very favorably for home buyers with the exception of consumer confidence.  But I am hopeful that sales will turn around by late spring and early summer because history suggests that home sales can rise even in times of job losses when housing affordability rises."

The National Association of Realtors, "The Voice for Real Estate", is America's largest trade association, representing 1.2 million members involved in all aspects of residential and commercial real estate industries.

For more real estate industry news and trends from the National Association of Realtors, visit www.Realtor.org.

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