Pending Home Sales Inch Higher in December

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Pending home sales in the U.S. increased just 1% in December, the National Association of Realtors announced Tuesday, with buyer activity tapering as the November 30 expiration of the original first-time buyers credit approached.Congress has since renewed and expanded the credit to $8,000 for first-time buyers and $6,500 for existing home owners for purchases before April 30, 2010.

The results were inline with a Bloomberg News economists' survey, which expected pending sales of previously owned homes would rise 1% in December, after plunging a revised 16.4% in November. Pending home sales increased 3.7% in October.

Further, with December's rise, the pending home sales are now up 10.9% since December 2008, with the NAR's pending home sales index at 96.6, compared to 87.1 a year ago.

Lawrence Yun, NAR chief economist, said the lull in buyer activity stemming from the initial tax credit's wind-down is detectable, but an underlying positive trend also is clear. "There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded," Yun said in a statement. "These swings are masking the underlying trend, which is a broad improvement over year-ago levels. December activity was the fifth highest monthly tally in two years."

Further, Yun estimates that the extended and expanded tax credit will encourage 2.4 million households to buy homes in 2010.

Pending home sales for December rose in every region except the West. Sales rose 2.3% in the Northeast, 5.2% in the Midwest, and 2.2% in the South, but fell 3.8% in the West.

In general, economists view existing home sales as a more-accurate indicator of housing sector activity than pending home sales, due to the number of pending home sales that fall through as a result of mortgage problems, title issues, liens, and other complications.

Housing Analysis

December was a status-quo month for pending home sales, as expected, given the wind-down of the original tax credit program. The pessimist would argue that the drop-off in pending home sales from earlier in the fall demonstrates that the federal home buyer tax credit had artificially boosted demand. Conversely, the optimist would argue the program worked -- generating both direct and companion-sector economic activity -- and now that Congress has extended it, sales should rebound in the spring.

Either way, the housing sector has endured such a pronounced slump that it will take all the buyer demand it can get -- organic, tax-credit-induced, or otherwise -- to get sales back to healthy levels.
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