Pending home sales, a significant indicator of the health of the housing market as closings generally happen a month or two after, climbed 3.5% from May to June, the fifth month in a row with a gain. That makes it the longest such streak in 6 years. The index has also climbed higher than it was when Lehman Brothers failed and the jobless rate began taking off last September. Pending sales are also 6.8% higher than in June last year, and are higher than that of any month since June '07.
The South had the biggest gain from May to June, at 7 percent, followed by the West at 3 percent, just under 1 percent in the Midwest, and about half a percent in the Northeast.
The pending home sales index is just the latest of a stream of reports that would tend to signify a bottom for the housing market. New home sales, as well as resales, also gained in June.
Sales are still down 74% from the boom in 2005, and if the pending sales result in closings, that would represent a 14% recovery. In the meantime, prices are still dropping and foreclosures are still coming in. Also, pending contracts have not been a very reliable indicator of closings recently because a large portion of contracts have fallen through. This is largely due to appraisers valuing homes at significantly below negotiated sales prices. Mortgage giants Fannie Mae and Freddie Mac have responded by revising their guidelines, forcing brokers to use professional appraisers with experience in the local market.
The Appraisal Institute is arguing that the appraisals are not undervaluing homes, but that the difference in appraisals and eventual sales prices are because of the current market.
Most analysts, while encouraged by the rising pending sales contracts, caution that any recovery will be slow because of continued joblessness and expected foreclosures on the horizon. Prices are expected to rise over the next few years, but only by three to five percent per year. After that, inflation could increase the rate of increase in home prices.
Because of the current low prices, low interest rates, and government incentives, now is an extremely ideal time to buy a primary home for those with job security and intentions to live in the same place for at least a couple of years.
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