Another sign of a housing thaw
June pending homes sales increased for the fifth straight month, adding to the list of positive reports recently released.
NEW YORK (CNNMoney.com) -- More Americans signed sales contracts to buy homes in June than in May, the fifth consecutive month of increases, according to a report released Tuesday.
The National Association of Realtors said its Pending Home Sales Index rose 3.6% during the month. That was 6.7% higher than June 2008. It was the fifth straight month of increases, the first time that has happened since July 2003..
The report followed several other recent pieces of good news for the housing industry, including a substantial rise in new home sales, a jump in existing home sales and the first home price increase in nearly three years.
The jump was also much higher than expected. A consensus of industry experts put together by Briefing.com had forecast an increase of just 0.7%
"Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who've been on the sidelines," said NAR chief economist Lawrence Yun.
"It's not unlike the Cash for Clunkers program," added David Crowe, chief economist for the National Association of Home Builders. "It's pushing people off the fence."
Low-end sales have been the strongest segment of the market, an indication that the first-time homebuyers tax credit, worth up to $8,000, is contributing to the rise. The clock, however, is quickly running out on this offer and may have buyers stepping up their shopping to get their purchases in under the wire.
"Because it may take as long as two months to close on a home after signing a contract," Yun said, "first-time buyers must act fairly soon to take advantage of the $8,000 tax credit because they must close on the sale by Nov. 30."
Crowe also acknowledged that the tax credit could be pushing home sales forward, leading to a later downturn. But he does not forecast a significant drop in housing activity, just a "stickiness" in buyers who won't feel as much urgency to "get off the fence" as they do with the credit in effect.
Housing affordability declined slightly in June, according to NAR's Housing Affordability Index, but remains favorable. The affordability index was 159.2 in July, pushed down from recent record peaks by increased mortgage rates. But it remains 36.6 percentage points higher than 12 months earlier
To purchase a home in June, the average family would have to devote 15.7% of its gross income to mortgage principal and interest, well below the 25% many experts recommend.
Mike Larson, a real estate analyst for Weiss Research, says all of these factors indicate continued market progress, although he sees no imminent return to the "glory days" of the mid-2000s in housing.
"Frankly, that's a good thing," he said. "I'd much rather see steady, consistent gains in sales; steady, consistent reductions in the rate of price depreciation; and steady, consistent declines in home inventory. That's exactly what is happening, and what should continue to happen as long as mortgage rates don't spike too sharply and/or unemployment doesn't worsen materially from here."