Following a market swing driven by response to the homebuyer tax credit, pending home sales in December have leveled off, according to a report Tuesday by the National Association of Realtors (NAR).
In November, the Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed during the month, fell to 95.6, a 16.4 percent decrease from surging activity in preceding months due to the anticipated expiration of the homebuyer tax credit. Following the extension and expansion of the credit, though, the PHSI in December jumped 1 percent to 96.6 and remained 10.9 percent above December 2008 when it was 87.1.
December’s PHSI varied from region to region. Compared to November, the PHSI in the Northeast jumped 2.3percent to 76.1 and was 14.9 percent higher than December 2008. The Midwest’s index of 86.9 was 5.2 percent higher than November and 8.7 percent above a year earlier.
In the South, pending home sales in December rose 2.2 percent from November to an index of 98.4, a 5.5 percent surge year-over-year. However, the index in the West fell 3.8 percent in December to 119.9 but was still 18.6 percent higher than the index one year earlier.
Lawrence Yun, NAR chief economist, said it is important to recognize how the tax credit is skewing market data.
“There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” he explained. “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.”
Yun projects 2.4 million households will take advantage of the extended and expanded tax credit. While new-home sales will remain low due to a lack of construction, Yun expects existing-home sales to rise to around 5.6 million this year, up from 5.16 million in 2009. He said one of the greatest benefits of rising sales will be firming home prices.
“For several months now we’ve been seeing stabilization in all of the home price measures as inventory is pulled down,” Yun said. “As a result, the housing wealth for many middle class families has begun to stabilize.”