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Home sales contracts leap higher

By Annalyn Censky, staff reporter


NEW YORK (CNNMoney.com) -- Contracts for the sale of existing homes rose sharply in February, the National Association of Realtors' (NAR) said Monday.

In the single-biggest monthly rise since October 2001, pending home sales rose 8.2% in February. Economists were expecting a 1% decrease.

It was also a 17% improvement over February last year. The unexpected increase could indicate demand driven by the federal government's homebuyer tax credit, NAR said.

Buyers have to ink contracts by the end of April to take advantage of the tax credit, which offers first-time homebuyers up to $8,000, and those who are trading up as much as $6,500.

NAR's report measures signed real estate contracts, but not completed sales, for existing single-family homes, condos and co-ops. Pending home sales are considered a forward-looking indicator since many of the contracts don't result in completed transactions for many weeks or months.

The tax credit is not the only factor driving home sales: Improved consumer confidence and lower unemployment numbers are also likely to push the number higher over the next few months, said Robert Dye, a senior economist with PNC Financial Services.

"A lot of economic indicators are starting to move back into positive territory, and I think we're going to see a good number of homebuyers come into the market to take advantage of very favorable home prices, low mortgage rates and the tax credit," he said.

On the flip side, there was a 16% drop-off in pending home sales in November, as homebuyers looked ahead to the initial Nov. 30 deadline of the tax credit. It was later extended to April 30. After surging July through October, pending home sales contracts fell during the winter months, real estate's slowest season.

Similarly, Dye said pending home sales could decline following the April 30 deadline of the tax credit. But an improved jobs picture could offset the drop-off effect.

"Right now, everything points to the labor market. What we need to see is continued strength in private sector job creation," he said.

A report released last week by the S&P/Case-Shiller Home Price Index of 20 cities showed that home prices have fallen for four consecutive months, following a five-month run-up in prices starting last spring.

Analysts don't expect a sharp rise in home prices any time soon, as foreclosed homes continue to enter the marketplace. But cheap homes and low-rate financing are gradually bringing out buyers, said Mike Larson, a real estate and interest rate analyst at Weiss Research.

"When I step back and look at the longer-term picture, housing affordability has been restored. The plunge in prices was always the solution to the housing bust -- not the problem," he said.

According to NAR, pending home sales rose the most in the Midwest, where they were up 21.8% in February from the month before. Both the South and Northeast saw an increase of around 9%. Home sales contracts fell 4.8% from month-to-month in the West, but still fared 14.6% better than last year in that region. To top of page

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