Home sales contracts rise for 8th straight month
Real estate rally attributed to first-time homebuyer tax credit that expires at the end of November.
NEW YORK (CNNMoney.com) -- The number of signed sales contracts to buy homes rose in September for the eighth straight month, according to a real estate industry report released Monday.
The September Pending Home Sales Index from the National Association of Realtors (NAR) spiked 6.1% to 110.1, consolidating a 6.4% gain in August. It was the index's highest level since December 2006, when it stood at 112.8.
The leap was far better than expected. A panel of analysts surveyed by Briefing.com had forecast a 1.2% rise.
Analysts, including Lawrence Yun, NAR's chief economist, have traced much of the improvement to the government's first-time homebuyer tax credit program, which gives an up to $8,000 tax break to new homebuyers. It's estimated that between 200,000 and 400,000 additional sales will have been made because of the credit.
"What we're witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month," said Yun.
The credit lapses after Nov. 30, and the housing industry is bracing for a major turndown in sales if Congress fails to pass some kind of extension.
"Clearly, buyers were eager to get business done before the credit's November expiration," said Mike Larson, a real estate analyst for Weiss Research. "So I wouldn't be surprised to see some give back in pending sales over the next month or two."
Any fall-off should only be temporary, however, according to Yun. Market conditions are just so favorable for buyers right now that sales should rebound quickly should they suffer through a hangover following the tax credit demise.
With home prices well off their highs and mortgage rates still extremely low, the cost of homeownership is well within the range for many Americans who are not homeowners today. There are, Yun estimates, about 3 million renters who are now financially well-qualified to buy a median-priced home.
"As long as buyers do not overstretch and stay well within their budget, a sizable pent-up demand can be tapped among financially qualified potential buyers," he said.
That will not translate into a new boom, however, according to Larson. "No explosion of pent-up demand will send markets to new heights," he said. "The economy is still not in fantastic shape."
Housing markets certainly do not seem to be out of the woods, but this latest release added to a modest winning streak of positive recent reports. Prices appear to have stabilized, with the S&P/Case-Shiller Home Price index up four months in a row and completed sales of existing homes at their highest level in two years.
Foreclosures, however, continue to plague many markets, adding to supplies on homes for sale, according to Yun.
"An excess of homes remains on the market despite recent improvements," he said. "Although current inventory is getting closer to price equilibrium, foreclosures will continue to enter the pipeline."
Increased pending sales are a forward-looking indicator since contract signings precede actual closings; they typically take place two to three months later. Although some contract signings fall through, a jump in signings in September usually means NAR statistics on December existing home sales will improve.