Pending Home Sales Still On The Rise

Pending house sales improved further in December 2010, marking the fifth gain in the past six months, according to the National Association of REALTORS. The Pending Home Sales Index, a forward-looking indicator, increased 2.0% to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2% below the 97.8 mark in December 2009.

The data reflects contracts and not closings, which usually occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, credits great affordability conditions and economic improvement. Modest gains within the labor marketplace and the improving economy are creating a more favorable backdrop for buyers, permitting them to take advantage of superb housing affordability conditions. Mortgage rates ought to rise only modestly in the months ahead, so well continue to see a favorable environment for buyers with good credit, he said.

In the past two years, home buyers have been extremely successful, with super-low loan default rates, partly because of stable house costs throughout that time. That trend is likely to continue in 2011 as lengthy as there's sufficient demand to absorb inventory, Yun said. The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-five million total annual home sales.

However, sales above six million, as occurred during the bubble years, is highly unlikely this year. The PHSI within the Northeast increased 1.8% to 73.9 in December but is 5.3% below December 2009. Within the Midwest, the index rose 8.0% in December to 84.6 but is 5.1% below a year ago.

Pending house sales within the South jumped 11.5% to an index of 101.9 and are 1.7% above December 2009. In the West, the index fell 13.2% to 105.8 and is 10.7% below a year ago.