Pending home sales rose with many first-time buyers taking advantage of historically good housing affordability conditions, according to the latest report by the NATIONAL ASSOCIATION OF REALTORS ®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, increased 3.2 percent to 84.6 from a level of 82 in February. It is 1.1 percent higher than March 2008 when it was 83.7.
Lawrence Yun, NAR chief economist, says it should take a few months for the market to gain momentum.
“This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down payment,” he says. “We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around.”
Here is a breakdown of pending home sales by region:
South: rose 8.5 percent to 93.2 in March and is 7.7 percent above a year ago.
West: increased 3.9 percent to 93.1 and is 1.7 percent higher than March 2008.
Northeast: fell 5.7 percent to 59.5 in March and is 24.1 percent below a year ago.
Midwest: slipped 1 percent to 82.3 but is 8.2 percent higher than March 2008.
NAR: Affordability Remains High
Meanwhile, NAR’s Housing Affordability Index remained near record highs.
The affordability index was 166.7 in March – down from an upwardly revised record of 174.4 in February due to higher home prices in March. The index remains 30.8 percentage points higher than a year ago.
The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.
NAR President Charles McMillan says the increase in buying power is quite remarkable.
“Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment,” he says. “For buyers who’ve been on the sidelines and have good jobs, the market has never looked more favorable. Homeownership has always offered immediate benefits and long-term value, but the advantages in today’s market are unique.”
A median-income family, earning $61,100, could afford a home costing $291,600 in March with a 20 percent down payment, assuming 25 percent of gross income is devoted to mortgage principal and interest.
Affordability conditions for first-time buyers with the same income and small down payments are roughly 80 percent of that amount. The affordable price was notably higher than the median existing single-family home price in March, which was $174,900.