The National Association of Realtors® issued the results of its Pending Home Sales Index for February this week, reading hopeful news into the statistics from six weeks ago. Pending home sales rose in February, “potentially signaling a second surge of home sales in response to the home buyer tax credit,” according to the Realtors’ association.
The Pending Home Sales Index is designed to be a forward-looking indicator and is based on contracts signed in a given month. In February, the index rose 8.2% to 97.6 from a downwardly revised 90.2 in January, and was 17.3% above February 2009 when it was 83.2. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.
The problem with the index in this market, as I see it, is that many contracts are short-sales. That is they are contingent on the sellers’ lenders’ approval to forego full reimbursement of mortgage liens at the time of closing. These short-sale contracts take longer to close and often the buyer walks away for another property, cancelling the pending sale while the contract is pending. Comparing this measurement in 2010 to the same index in 2006 may be like comparing apples to oranges. But, hey, I’m not a statistician.
Lawrence Yun, NAR chief economist, said “We need a second surge to meaningfully draw down inventory and definitively stabilize home values.” We’ll see what March brings for national statistics. In Flagstaff, while there was an uptick in prices in February, March prices fell again.
Separately, I received the results of a national survey performed monthly by Credit Suisse. The bank surveys real estate agents to determine traffic levels and inventory in both new and existing home markets. The responses are based on agent experience rather than actual transaction counts. According to this survey, traffic levels were higher in March but buyers remained hesitant because of employment anxiety. Buyers who purchased were motivated by the tax credit and were generally in the lower price ranges. Prices in most markets were seen as stabilizing. In the Phoenix market, buyers expressed the belief that prices would drop further when hesitating to buy now.
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