Pending home sales rise 6.3 percent

Buyers wade back into market as prices fall along with mortgage rates

By Associated Press
February 3, 2009

WASHINGTON - An index that tracks signed contracts to purchase existing homes rebounded in December, as buyers snapped up properties at deep discounts, especially in the South and Midwest.

It was the second positive sign in the past two weeks for the troubled U.S. housing market, and may indicate that a bottom is forming — at least for home sales. Analysts, however, caution that prices are likely to keep falling through 2009, and say the outlook for home sales is uncertain, especially as layoffs mount and banks’ lending standards remain tight.

“Buyers are dipping their toes back into the housing market, but they have yet to really take the plunge,” wrote Joel Naroff, chief economist with Naroff Economic Advisors.

The National Association of Realtors said Tuesday its seasonally adjusted index of pending sales for previously owned homes for December rose 6.3 percent to 87.7 from an upwardly revised November reading of 82.5, which was lowest month on record. That’s better than the 82.3 reading economists expected, according to a survey by Thomson Reuters.

The reading also was up 2.1 percent from December 2007.

Typically there is a one- to two-month lag between a contract and a done deal. Home sales that were pending in December are likely to be completed in the coming weeks.

After the stock market crashed last fall, sales of existing homes plunged in October and November, but recovered in December. Tuesday’s pending home sales report indicates January sales data, to be released later this month, may look good too. While lower prices and lower mortgage rates appear to be boosting demand, the timing of a housing market turnaround is likely to depend on how far the overall economy sinks.

“Eventually, the positives will outweigh the negatives,” said Pierre Ellis, senior economist with Decision Economics in New York. “Hopefully, that will be reasonably soon and we’ll have the beginnings of a recovery.” Even when that happens, most economists expect home prices will increase slowly. In the Realtors’ report, pending home sales increased about 13 percent in the South and Midwest, but fell almost 4 percent in the West and about 2 percent in the Northeast.

The Realtors group, normally known for its optimistic view of the housing market, is now cautioning against getting too enthusiastic about any recovery — as it lobbies hard for new government tax credits to boost home sales.

“Significant uncertainty still clouds the housing market despite improved affordability conditions,” Lawrence Yun, the group’s chief economist said in a statement. “For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus.”

Of course, the U.S. housing market is still coping with the worst downturn in decades, and much of the country remains weak.

Sales of newly built homes plunged to the slowest pace on record in December and builders posted their worst annual sales results in more than two decades, the government said last week.

On Tuesday, D.R. Horton, the nation’s biggest homebuilder, said it lost almost $63million in its most recent quarter as sales slumped by half.

Concern about the health of the housing market, which triggered the recession, is driving a plan by Senate Republicans to push down the cost of mortgages. The plan could be included in the economic stimulus bill at the top of President Barack Obama’s agenda.

Republicans on have been coalescing behind a proposal designed to give banks an incentive to make loans at rates currently estimated at 4 percent to 4.5 percent. Mortgage finance companies Fannie Mae and Freddie Mac, which were seized by the federal government in September, would be required to purchase the mortgages once banks have made them to consumers.

Officials said loans to creditworthy borrowers on primary residences with a mortgage of up to $625,000 would qualify, including those seeking to refinance their current loans. Republican officials also intend to press for a $15,000 tax credit for homebuyers through the end of the year.

For link to article, please visit http://www.msnbc.msn.com/id/28994648/

Rise in pending home sales reveals glimpse of bottom

By Megan Ainscow & edited by Sarah Sussman
Mortgage News Daily
February 3, 2009

With U.S. housing affordability at a record high in December, a better-than-expected rise in pending home sales showed signs homebuyers are returning to the market.

December's pending home sales grew by 6.3%, against expectations of a flat reading. The report from the National Association of Realtors (NAR) records home sales that are signed but not finalized, predicting existing home sales for the months ahead.

"This is an encouraging report as it suggests that a potential bottom in the housing market is materializing," said Ian Pollick, an economist at TD Securities.

Nevertheless, Pollick said there remains a "tremendous" amount of supply on the housing market. To make matters worse, the Federal Reserve's quarterly Senior Loan Officer Survey released yesterday revealed that banks are still tightening the conditions under which they'll issue mortgages.

"You have to start somewhere," said Ian Shepherdson, an economist at High Frequency Economics, referring to the increase. He attributed today's rise to attractive bargain basement prices on foreclosed homes.

Indeed, the report from NAR showed the affordability index hit 158.8 - its highest level on record.

The sale of heavily discounted homes is "hardly the sign of a robust market," said Paul Dales, an economist at Capital Economics.

However, one economist disagreed that the foreclosure argument paints the whole picture.

Michelle Meyer, an economist at Barclays said, "the balance in home sale was concentrated in the Midwest and in the South, and those areas, while they do have notable presence of foreclosures, it's not as high as what you've seen in the West," she said.

While this is a positive sign, Meyer said she doesn't foresee a bottom in housing activity before mid-year, and added home prices still have a long way to fall.

Dales agreed, and said with so much inventory left to be sold, U.S. home prices will fall by another 10% or so.

©CEP News Ltd. 2009

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What will it take to get you to buy a house?

By Kenneth Harney
San Francisco Chronicle
February 1, 2009

If you'd love to purchase a new house but you're sitting on the fence, what exactly would it take to get you to buy?

Mortgage rates lower than 5 percent? Smaller down payments? Below-market value pricing? Special amenity packages? Or a big tax credit?

What's the magic mix that will get you motivated? Or is it unlikely you'll get off the fence as long as you're worried about the economy and further drops in real estate values?

Questions like these are at the core of the housing industry's dilemma: Builders are stuck with bulging inventories of homes - most of them priced lower than six months or a year ago - that are still not selling. Strategies to bring buyers back into the market dominated the recent weeklong annual convention of the National Association of Home Builders. It was also the key subject of an eye-opening new consumer opinion survey conducted by the association's research subsidiary.

The study, conducted in early January, polled more than 700 self-described "on-the-fence" buyers, segmented to represent consumers in all areas of the country at varying price levels. Asked why they hadn't yet committed to a purchase, 44 percent said they're holding out for lower mortgage rates, 41 percent said they weren't sure they could qualify for financing and 38 percent said they expect to see lower house prices.

Concerns about falling property values were most prevalent among consumers in the Western region, while buyers in the Northeastern and Midwestern states were more likely to be waiting for lower interest rates. Buyers in the South tended to be more concerned about their ability to qualify for a new mortgage.

Researchers asked what individual enticements - financial or otherwise - would motivate them most to get past their worries and buy. Some of the results were surprising to builders at the convention session where the study was introduced. A few of the findings even appeared to conflict with the builders association's policy positions.

For example, although the association is vigorously lobbying the Obama administration and Congress for a 10 percent federal tax credit with a cap of $22,000 in the most expensive markets, the survey results suggested that a tax credit alone is not sufficient to motivate buyers to sign purchase contracts.

The study examined the effectiveness of a credit roughly the size the association is seeking from Congress, but it ranked sixth on a list of 10 features that would pull buyers off the fence - well behind mortgage and price concessions.

The mortgage rate that consumers said would be most effective in persuading them to buy now: a 30-year loan with a fixed 3 percent interest rate. Whether by coincidence or design, one of the country's largest home builders for high-end buyers, Toll Brothers Inc., announced a 3.99 percent 30-year fixed rate on new houses nationwide during the convention, through Jan. 25.

A 30-year fixed-rate loan at 3 percent was ranked twice as effective an enticement as a 3 percent loan fixed for five years, with an adjustment to 5 1/4 percent, fixed for the remainder of the loan term. Not surprisingly, at a time when Fannie Mae and Freddie Mac require substantial down payments for the best interest rates, the study found that a zero-down option would be highly attractive to potential buyers - more than twice as effective as 10 percent down.

Guarantees by builders that loan applications will be accepted if buyers verify their income and have a "fair" credit score ranked high in the survey. Such a guarantee was rated six times more effective than standard application procedures, where applicants can be rejected at the underwriting, appraisal review or other stages.

Price concessions also are compelling to would-be buyers. Most effective of all: a 10 percent discount below true market value - in other words, instant equity for the purchaser up-front.

Among other findings in the study that some builders found sobering: Their traditional approach of offering incentive packages of free upgrades and amenities may not be all that effective. The same may be true for heavily marketed green features - energy efficiency certifications and environmentally sensitive designs. If a new house comes with a green certification but costs $2,000 more than a standard model, this doesn't motivate shoppers to buy, researchers found. Even if the house is green-certified and costs the same as a standard house, that alone won't do the trick.

Bottom line: Look for builders to offer combination packages of special financing, price concessions, lower down payments and perhaps application guarantees. They'll still push for tax credits on Capitol Hill, but financing concessions appear to have more clout with their potential customers.

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