Pending Home Sales Offer Hope

For-sale signs have stayed in place a little longer with the persistent decline in home sales. But Tuesday brought good news: The pending home sales index nationwide rose 6.3 percent from November to December.

The national and local increases reported Tuesday are seen as good news for a depressed housing market.

By JIM BUCHTA, Star Tribune

Good news arrived for Main Street --and Wall Street -- on Tuesday when the National Association of Realtors reported that its pending home sales index nationwide rose 6.3 percent from November to December. That report helped reverse three days of declines for the Dow Jones industrials, lifting the index 141 points.

The Twin Cities got even better news. Actual pending sales in the 13-county metro area during January rose a robust 17.7 percent, marking the seventh consecutive year-over-year monthly increase, according to an analysis of data from the Minneapolis Area Association of Realtors.
While the latest sales figures are a bright spot in an otherwise gloomy economy, persistent declines in home prices, clogged credit markets and rising unemployment suggest that a full recovery might still be several months down the road.

"I would love to think that this is the bottom," said Mary Bujold, director of research for Minneapolis-based Maxfield Research. "But I don't know that right at this moment that I can be that optimistic."

The pending sale report is closely watched by many because it's an important indication of future activity. It generally takes two to three months for those pending sales to become closed sales, but in today's market, not every pending is going to become a closed sale the next month.
Yet other market indicators will continue to present challenges well into next year: Median sale prices are expected to fall at double-digit rates for several months to come, and getting a mortgage is still a challenge for many buyers. That's why the national group is lobbying the government for additional tax credits to help stimulate the market.

"Significant uncertainty still clouds the housing market despite improved affordability conditions," said Lawrence Yun, chief economist for the National Association of Realtors. "For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus."

New listings coming on the market have steadily declined, reducing overall inventory levels. That includes the inventory of new homes as well.

The number of unsold new houses on the market in the seven-county metro area has fallen from 6,000 units during the first quarter 2007 to a little more than 3,200 by the end of 2008, according to data from MetroStudy. That translates into a 7.7-month supply of new housing.
In Washington earlier this week there has been debate about a plan to lower the interest rate on home mortgages to 4 to 4.5 percent and to stimulate borrowing by requiring Fannie Mae and Freddie Mac to purchase those mortgages from lenders.

There's also expected to be pressure from Republican officials to implement a $15,000 tax credit for home buyers. Already, a $7,500 federal tax credit that became available last year is getting some recognition for helping to lift the market.

However, more credit for the rise in pending sales is being given to distress sales, which accounted for 32 percent of all active listings in the Twin Cities metro area last month. Sales of those lender-mediated transactions, including foreclosures and short sales in which the lender forgives part of the mortgage to facilitate a sale, have been a drag on home prices. The median sale price of a traditional home sale last year was down 2.6 percent, while lender-mediated sales plummeted 19 percent, according to the Twin Cities association.

Pending sales don't translate directly into closed sales the next month. In November, for example, in the Twin Cities metro area, pending home sales rose 3.7 percent ahead of the same month in 2007. But in December closed sales rose almost 15 percent compared with December 2007.

Though such data aren't tracked regionally, some say that contract cancellations are on the rise. That's because in today's market, borrowers are more likely to discover after they've signed a contract that they can't get a mortgage, while others are making low-ball offers on bank-owned listings that can take many months to close.

The National Association of Realtors said Tuesday that the increase in pending sales in December was well above what economists expected.

Though declines in inventory and rising sales are good news for the market, broader economic challenges persist.

"People just don't know what's going to happen," Bujold said. "Uncertainty means that you don't go out and make any purchases unless you feel like you have to take advantage of it because it's not going to come around again."