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Pending home sales slipped 3.5% in December after reaching a 19-month high, but were 5.6% above levels from the same month in 2010, the National Association of Realtors reported on Wednesday. Pending home sales are contracts that have not yet gone to closing, and are a good indicator of sales to be completed within the next one to two months.
The Pending Home Sales Index fell from 100.1 in November to 96.6 in December. An index of 100 is equal to the level of contracts in 2001 when NAR began keeping track of pending home sales, and is considered to be “historically healthy.”
By region, the index of 95.3 in the Midwest actually increased 4% in December and had a 13.3% increase from December 2010. The index in the Northeast fell 3.1% to 74.7 in December to a level 0.8% lower than a year ago. In the South and in the West, the index in both regions slipped in December but increased from December 2010, with index readings of 101.1 and 107.9, respectively.
Lawrence Yun, NAR chief economist, said the trend line remains positive. “Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period,” he said.
Yun said that contract failures continue to put a burden on contract closings, and are reported by a third of Realtors. Contract failures can be due to the borrowers' inability to obtain a mortgage or a home's appraised value being less than the negotiated sales price. Yun added that some borrowers do go on to close on the deal after a contract delay and others continue their search and make another offer.
“Housing affordability conditions are too good to pass up,” Yun said. “Our hope is lending conditions will gradually improve with sustained increases in closed existing-home sales.”
Mortgage interest rates remain at historically low levels and continue to boost the housing market. The national average for a 30-year fixed rate conventional loan was 3.98% last week.
Meanwhile, homeowners who have decided to stay put and fix up their current house are driving the remodeling market to its highest level in five years, the National Association of Home Builders reported yesterday.
The NAHB Remodeling Market Index increased to 46.6 in the fourth quarter to from 41.7 in the third quarter. An index reading below 50 means that more remodelers say that market activity is lower than the previous quarter than those who say it is higher. Computing the RMI includes factors such as current remodeling activity and expectations for future activity, calls for bids, appointments for proposals, and work committed for the next three months.
“With several key components above 50, the latest RMI provides reason for guarded optimism going forward,” said NAHB Chief Economist David Crowe. “The residential remodeling market has been improving gradually, mirroring the trend in other segments of the housing market. Stringent lending requirements and economic uncertainty continue to be a drag on demand, but we expect a modest growth in remodeling activity to continue throughout 2012."
National Association of Realtors
National Association of Home Builders