Pending Home Sale Numbers Suggest Many Sales Ahead

Who holds the crystal ball on the real estate market? Well, the National Association of Realtors® thinks it does. And it's not off-base; NAR's monthly pending home sales report, which the trade group calls a "forward looking indicator" does provide a pretty good read on what's coming down the pike in the real estate market. You see, homes sales can't be measured in real time, as it takes between 30 and 60 days, on average, for a buyer and seller to actually transfer the home. (Of course, short sales and foreclosures can take longer to close -- much longer, sometimes.)Once buyer and seller sign the contract, the home goes into what the industry calls "pending" status, while the buyer has the home and title inspected and finalizes their financing. Because most homes which go pending do eventually end up as closed sales, the number of homes which go pending in a given month is a good predictor of how many actual home sales we'll see in the months to come.

Existing home sales were, well, underwhelming in October: down 2.2%t compared to the previous month. But pending sales -- surprise! -- blasted way up in the same month; up 10.4% compared to September. (Even at these levels, pending home sales are 20% lower than this time last year. But this time last year, the tax credit deadline was approaching, making lots of buyers buy, and fast. So comparing this year to last year is like comparing apples to pluots: can't do it -- wouldn't be prudent.)

To what do we owe the welcome news of this hockey-stick shaped uptick in home sales? Easy: AFFORDABILITY. Home prices are at or near their bottom in the vast majority of markets; in fact, a few markets have actually seen prices go up this year. And not in the history of interest rate tracking have interest rates ever been lower than they were in October. Even after factoring in the battle-scarred American household income, homes are as affordable as they've ever been in the 20 years affordability has been tracked!

And buyers are finally taking notice. But this hike in pending sales could very well be a spike, rather than a sustained recovery. Lawrence Yun, Chief Economist for the NAR, explains that while "it is welcoming to see a solid double-digit percentage gain. Activity needs to improve further to reach healthy, sustainable levels." "More importantly," Yun elaborates, "a return to more normal loan underwriting standards and removal of unnecessary underwriting fees for very low-risk borrowers is needed and could quickly help in the housing and economic recovery."

If you've had your homebuying interest piqued by affordable prices, but still need to save up for a down payment and do some credit score rehab before you buy, have no fear. Unlike the bubblicious appreciation we saw earlier in the decade, this go-round, home prices will rise slower than a dial-up download -- in most places. And even in the cities where prices already are on the rise, the worst thing you could do would be to overextend yourself or buy a home before your finances are truly ready for the long-term commitment to a mortgage. There are lots of good reasons to buy a home, but panic is not one of them.
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