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September Pending Home Sales - 8 Month Winning Streak

Pending home sales rose for the eighth straight month of consecutive gains - the longest winning streak since measurement in 2001 - according to a report released today by the National Association of Realtors (NAR).

The pending home sales index rose 6.1% to 110.1 from a reading of 103.8 in August, the highest reading since Decmeber 2006 when the the index was 112.8. The pending-home sales index is a forward-looking indicator that is based on contracts signed in September. The index is 21.2% higher than the reading of 90.9 from a year ago, at the largest one-year gain on record.

Lawrence Yun, NAR chief economist, said the momentum is understandable. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”

NAR estimates approximately 3 million renters are now financially well-qualified to buy a median-priced home. “As long as buyers do not overstretch and stay well within their budget, a sizable pent-up demand can be tapped among financially qualified potential buyers,” Yun said. “Although the tax credit is greatly reviving the existing home market, new-home sales may continue to struggle as home builders hold back production to drive down inventory. In addition, there remains an ongoing credit crunch for construction loans.”

Regionally, in the Northeast the pending home sales index dipped 2% to 83.6 in September but is 16.9% higher than it was a year ago. The index in the Midwest increased 8.1% to 98.2 in September at 17.8% higher than September 2008. The index in the South rose 4.9% to a reading of 109.7 and is 22.8% higher than it was a year ago. In the West, pending home sales increased a healthy 10.2% to 143.8 and is 23.7% higher than it was a year ago.

Yun added that strong near-term reports should not be overstated. “We’re clearly not out of the woods because an excess of homes remains on the market despite recent improvements,” he said. “Although current inventory is getting closer to price equilibrium, foreclosures will continue to enter the pipeline. An extended and expanded tax credit would help absorb this incoming inventory.”

A pending home sale is recorded when a seller accepts a sales contract on a property. The majority of pending home sales become home sale transactions, typically one to two months later, but a certain percentage of contracts are inevitably cancelled before going to closing.

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Friday, 10 July 2020

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