Advance! Advance!

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In a report released today by the National Association of REALTORS® (NAR), the Pending Home Sales Index advanced for a fourth month in a row.  Granted, the increase was only 0.1% from April to May, but it was still good news.  In addition, the index continued a four month positive trend which is the first time that has happened in nearly five years.  On an even brighter note, the index rose a whopping 6.7% when you compare it to May of last year.

We do need to temper our enthusiasm; however, because a rise in sales contracts may not yield a like increase in completed sales.  Lawrence Yun, NAR’s chief economist said, “Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions.”

I have personal experience with these new appraisal guidelines which allow appraisers to use foreclosed properties as comparables in their appraisals.  These properties, typically owned by banks and have been through the foreclosure process, sell for significantly less than the homes of ordinary sellers.  NAR’s President, Charles McMillan, comments, “We see that distressed homes often are selling for 20% less than normal homes in the same area.”  In addition, lenders are absolutely apoplectic about getting appraisers to dampen their appraised values so that they don’t end up with a toxic asset that is overpriced and unsalable should they happen to get the home back because of an owner not paying their mortgage.

Another sign that the housing market is poised for a rebound is that homes prices are more affordable than ever (literally).  NAR’s Housing Affordability Index is hovering at historic levels that haven’t been seen since 1970.  Yun said, “Under these conditions, the typical family would devote only 14.6% of gross income to mortgage principal and interest, which is one of the lowest percentages on record.”  Mortgage rates have been holding steady which is a big factor in the affordability equation.

Having said all this, we’re not out of the woods yet.  There are still a lot of economic factors that are not only weighing down the economy, but people’s minds and wallets as well.  For more information on local Market Conditions and Interest Rates, click on the tabs at the top of this post.

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