Pending home sales increase by 2% in what could be described as a stable to increasing home sales market

Pending home sales rose two percent in December to 93.7 pointing ahead to continuing momentum for existing home sales. December's gain is the fifth in six months and reflects what the National Association of Realtors calls good affordability and economic improvement. This report is definitely a plus yet whether gains will be extended through the first quarter is uncertain given the drop underway in weekly data on purchase applications.

The real question is not whether home prices will stabilize in the current market, it is what will happen when congress decides what to do with the agencies and what will happen once inflation and interest rates take their toll on housing prices.  Via NAR:

Pending home sales improved further in December, 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 percent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2 percent below the 97.8 mark in December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, credits good affordability conditions and economic improvement. “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions. Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favorable environment for buyers with good credit,” he said.

“In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is 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-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”

The PHSI in the Northeast increased 1.8 percent to 73.9 in December but is 5.3 percent below December 2009. In the Midwest the index rose 8.0 percent in December to 84.6 but is 5.1 percent below a year ago. Pending home sales in the South jumped 11.5 percent to an index of 101.9 and are 1.7 percent above December 2009. In the West the index fell 13.2 percent to 105.8 and is 10.7 percent below a year ago.

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