WASHINGTON – Sales of existing homes nationwide may rise slightly over the next couple of months, and improve significantly by the end of the year as affordable mortgages become available to more buyers, the National Association of Realtors said today.
The NAR’s Pending Home Sales Index for April was 88.2 points, an increase of 6.3 percent from March’s 83.0-point reading and the highest level since October. But it remained 13.1 percent below its April 2007 reading of 101.5 points.
The index – reflecting just-signed contracts, which may take several months to close – serves as a leading indicator for the housing market. Analysts had expected the index would fall another 0.4 percent in April, accelerating from March’s 0.1-percent decline, based on the median estimate from a Bloomberg News survey of 32 economists. (Their April estimates ranged from a decline of 1.5 percent to an increase of 1 percent – far short of the actual gain.)
“Bargain hunters have entered the market en masse – especially in areas that have experienced double-digit price declines – but it’s unclear if they are investors or owner-occupants,” wrote Lawrence Yun, the NAR’s chief economist.
“Sharp price reductions are leading to a quicker discovery of price equilibrium points,” he said. “The West is already seeing year-over-year gains in pending contracts.”
In the Northeast, the index fell to 79.3 points, a decline of 1.9 percent from its March level and 12.2 percent from April 2007. Sales rose last month in the Midwest (13.0 percent), the West (8.3 percent) and the South (4.6 percent). Compared with a year ago, however, sales rose only in the West (4.0 percent).
“It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” said NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif.
“Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004,” Gaylord said, “but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future.”
Going forward, the NAR president said, the “recent declines in mortgage rates on conforming jumbo loans and a return to sound but not overly stringent underwriting standards will permit more people to qualify for a loan.”
The trade group’s affordability index “has been trending up this year,” the NAR noted. It is now projected to rise 15 points this year, to end 2008 at 128.0.
Sales of existing homes nationwide are expected to total 5.40 million for all of 2008, the NAR said. The sales pace for existing homes is expected to rise from a second-quarter rate of 5.05 million units per year to a fourth-quarter rate of 5.83 million per year, as the mortgage market eases.
New-home sales will probably fall 31.7 percent this year, to a 2008 total of 529,000 units, before rising 12.5 percent next year, the NAR projected. Housing starts (including multi-family projects) are expected to fall 27.2 percent to 987,000 units this year, and slip another 0.6 percent in 2009.
Market fundamentals point to considerable pent-up demand, Yun noted. “Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs.
“The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely,” he said. “On the other hand, it’s unclear what role consumer confidence will play in the coming months.”
Meanwhile, after “unprecedented” declines in the first half of 2008, home prices are expected to stabilize in the year’s second half, the NAR said. The trade group estimated prices have fallen about 8.4 percent in the first six months of the year. After stabilizing in the second half, prices will rise 4.4 percent next year to $213,900, the NAR predicted.
“Although mortgage interest rates will remain historically favorable” as the housing market begins to recover, “they will start to steadily inch up,” Yun said. The average rate on a 30-year fixed-rate mortgage is expected to rise to 6.3 percent by year’s end, then hold there through most of 2009.
But, he warned, “policymakers need to be attentive to the fact that many homeowners have seen a reduction in housing equity or are in an “underwater” situation. More needs to be done on the policy front to alleviate hardships and bring fence-sitters back into the marketplace.”
The NAR also foresees improvement in the U.S. economy, projecting the gross domestic product will grow 1.7 percent in 2008 and 2.0 percent next year. The unemployment rate will average 5.3 percent this year and 5.6 percent in 2009, the trade group said. But disposable personal income adjusted for inflation (real DPI) is expected to grow 1.4 percent in all of 2008 and 2.5 percent in 2009.
The Pending Home Sales Index is based on a sampling of 20 percent of transactions in the Multiple Listing Service used by real estate agents nationwide. The NAR has been compiling the data since 2001 and publishing the index since March 2005.
The National Association of Realtors is the nation’s largest trade association, with 1.2 million members in all aspects of residential and commercial real estate. Additional information is available at www.realtor.org.
