Pending sales of home rose again in November for the third consecutive month according to the National Association of Realtors (NAR). Pending sales reached the highest level in two and a half years.
In a news release issued Friday, the Pending Home Sales Index (PHSI) showed that pending contracts rose 1.7%t to 106.4 in November from a downwardly revised 104.6 in October. This is 9.8% above November 2011 when it was 96.9. The data reflect contracts but not closings.
The PHSI is a forward-looking indicator based on pending contracts for sales of existing homes, condos, and co-ops. It looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. A signed contract is not counted as a sale until the transaction closes.
According to the NAR, the index is at the highest level since April 2010 when it hit 111.3 as buyers were rushing to beat the deadline for the home buyer tax credit. With the exception of several months affected by tax stimulus, the last time there was a higher reading was in February 2007 when the index reached 107.9.
Lawrence Yun, NAR chief economist, said home sales are on a sustained uptrend. “Even with market frictions related to the mortgage process, home contract activity continues to improve. Home sales are recovering now based solely on fundamental demand and favorable affordability conditions.”
The good news for the economy and home owners is that on a year-over-year basis, pending home sales have risen for 19 consecutive months. The upward momentum means existing-home sales should rise 8 to 9% in 2013 to approximately 5.1 million. In 2012 sales were up 10% reflecting pent-up demand after two years of stagnant sales.
The pending sales were not even across the nation, however. The Northeast and Midwest fared better than the South and particularly the West where inventory constraints are limiting sales.
The PHSI in the Northeast rose 5.2% to 83.3 in November and is 15.2 % higher than a year ago. In the Midwest the index edged up 0.1% to 103.8 in November and is 15.2% above November 2011. Pending home sales in the South were unchanged at an index of 117.2 in November and are 13.9% higher than a year ago. In the West the index rose 4.2 percent in November to 110.1, but is 3.2% below November 2011.
Last week, the S&P/Case Shiller Index reported that home prices have risen to a two year high. The demand for housing coupled with rising prices indicates that the housing industry is strong. Most of the net worth of middle and lower income families is in the equity in their homes. About half of the equity lost in the burst of the housing bubble has now been restored.
There are dark clouds, however. If Congress sends us over the fiscal cliff, or into another debt ceiling debacle like last year, the stock market will drop destroying wealth. If taxes go up, middle class families will have less to spend on a mortgage. The uncertainty over all of this is likely to dampen the housing market.
Unless Congress destroys it, the trends in the housing sector are very encouraging.
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