Pending home sales activity surged as buyers took advantage of low home prices and affordable interest rates, according to the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in August, jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.
Lawrence Yun, NAR chief economist, said home buyers were responding to improved affordability. “What we’re seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region,” he said. “It’s unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we’re hopeful most of the increase will translate into closed existing-home sales.”
Yun notes the unusual timing of contract activity in August. “Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie,” he said. “August shows some unleashing of pent-up demand before the credit crisis accelerated in September.”
He cautioned that the sampling size for pending home sales is smaller than the track on existing-home sales, so there is more volatility in the forward-looking series. “We need to see just how much of this gain holds up,” Yun said.
Yun now expects growth in the U.S. gross domestic product (GDP) to contract for two consecutive quarters, in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as the housing market begins a steady improvement.
Looking at middle-ground assumptions, existing-home sales are forecast at 5.04 million this year and 5.41 million in 2009. Following national declines of 5 to 8 percent in 2008, home prices are projected to increase 2 to 3 percent next year.
Unexpected Growth through 2007
Preliminary numbers indicate home improvement spending appears to have grown faster than expected through 2007, according to Harvard University’s Joint Center for Housing Studies (JCHS). A final report highlighting the growth of the remodeling market in recent years will be released in early 2009.
However, the current weak economy and uncertainty in the housing markets will be key hurdles to remodeling activity in 2009, according to the Leading Indicator of Remodeling Activity (LIRA), also compiled by JCHS. The latest LIRA report points to homeowner spending declining at an annual rate of 12 percent by the second quarter of 2009.
“There are a few hopeful signs that we may be nearing a cyclical low point for home improvement activity,” notes Kermit Baker, director of the Remodeling Futures Program of the Joint Center. “Existing-home sales appear to be stabilizing, and interest rates for financing home improvements are favorable,” he says.
“Other market indictors continue to deteriorate,” he cautions.
Housing Stock at 128 million
From seasonal vacation homes to mobile homes, housing units in the United States increased from 124.4 million in 2005 to 128.2 million in 2007, according to the U.S. Census Bureau’s American Housing Survey (AHS).
- The vast majority of housing units, 80 million, were detached single-family homes.
- Median monthly housing costs for owners were $927 in 2007. For renters, housing costs were $755.
- The median home value in 2007 was $191,471 and the median monthly payment for principal and interest was $852 for owner-occupied housing.
- The 2007 survey found more than 4 million occupied homes valued at more than $750,000, while the number of homes and apartments valued at over $300,000 increased by 20 percent over 2005.
- Among the 75.6 million homes that were owner-occupied, 24.9 million units, or one in three, were owned free and clear without a mortgage.
- The median size of single, detached and mobile homes rose to 1,769 sq. ft., a slight increase since 2005.
- Among all occupied housing units half of the units built since 2003 had a usable fireplace; 58 percent had a separate dining room; 70.8 million had dishwashers; and 86 percent were air-conditioned.
The report is available at www.census.gov/hhes/www/housing/ahs/new.html.