Historically Elevated Housing Affordability Increases Sales
December 31, 2010.
According to Lawrence Yun with the NATIONAL ASSOCIATION OF REALTORS ®, pending home sales were up again in the month of November, with the general trend occurring within the last five months showing a gradual recovery goint into 2011
The Pending Home Sales Index, the upward indicator, gained 3.5 percent to 92.2 relying upon sales contracts written in the month of November from a downward revision of 89.1 in the month of October. This index is around 5.0 percentage points less than the 97.0 percent in the month of November 2009. This data reflects contracts written and not closed sales, which normally lag behind one to two months.
NAR chief economist, Lawrence Yun, said historically elevated housing affordability increases sales. "In addition to the outstanding affordability environment, and steady recuperation in the economy is bringing additional buyers into the real estate market," he added. "But additional gains are required to reach more traditional sales activity levels."
In the Northeast. the PHSI were up 1.8 percent to 72.6 for the month of November but staying 6.2 points less than November of 2009. The Midwest index was off 4.2 percent for the month of November to 78.3 which was 7.7 percent less than a year ago. In the South, pending home sales slid 1.8 percent to an indicator of 91.4 a full 7.2 percent less than November 2009. The index out in the West bounded up by 18.2 percent to 123.3 but still is only a scant 0.4 percent higher than one year ago.
"If 2 million jobs are added (BIG IF) as predicted for 2011, and mortgage interest rates only rise moderately, we would see sales of existing home rise to an increased, prolonged volume," Yun said. "Mortgage credit is still tight, but if lenders go back to more traditional, safe underwriting guidelines for creditworthy purchasers, there would be a much larger increase to sales in the housing market creating spillover advantages for the economy in general." The fixed-rate 30 year mortgage is estimated to gradually increase to 5.3 percent towards the end of 2011; while unemployment rates should decrease during the same time to 9.2 percent.
To keep it in perspective, Yun added that 27 million more people have made their home in the U.S. since 2000. "But, the number of jobs remains at pretty much the same figure it was 10 years ago when existing levels of home sales were at 5.2 million, which seems to be a achievable number given the current employment level," he explained. "All the trend indicators are pointing to a somewhat slow housing upturn," Yun said. "The price of homes will vary based largely upon the local job markets. The national median home price, on the other hand, is
predicted to continue to be stable even with an ongoing ebb of distressed properties flowing onto the marketplace, as long as the demand remains steady for financially stable home buyers."
2011 sales of existing homes are forecast to increase about 8 percent to about 5.2 million up from 2010's 4.8 million, with an added growth of 4 percent for 2012. The median price of existing homes could increase around 0.6 percent up to $173,700 in 2011 up from $172,700 during 2010, which was
fundamentally unaffected from 2009.
"As the over abundant housing inventory gradually works itself out, supplies will eventually decrease to become more in-line with traditional averages, and could provide for moderate rises of home prices in the 2 to 3 percent range in 2012," Yun explained. New-home sales are predicted to increase 24 percent up to 392,000 in 2011, but stay well below traditional averages, while new housing starts are estimated to rise 21 percent to 716,000.
Yun envisions the GDP expanding 2.5 percent in 2011 along with the CPI going up 2.3 percent.