Pending Home Sales Up in March

Pending home sales rose in March, as first-time buyers took advantage of low prices and mortgage interest rates, plus an $8,000 tax credit, to make the move into home ownership.

The National Association of Realtors (NAR) reported that its Pending Home Sales Index rose 3.2 percent in March, to 84.6. The figure also represents a 1.1 percent increase in pending sales over March 2008.

Lawrence Yun, NAR chief economist, expressed optimism over the news but said it should still 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," said Lawrence Yun, chief economist for NAR. "We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around."

Tax credit gives a boost

He credited the new $8,000 tax credit for spurring sales, in particular in areas where special programs allow buyers to use it as part of their down payment.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

The NAR also reported that its Home Affordability Index declined in March, but remained near record highs. The index, which tracks the relationship of median family incomes to median home prices, dropped to 166.7 in March, down from a record 174.2 the month before.

Affordability remains high

In general terms, the March figures mean that a family earning the U.S. median income of could afford a home costing 166.7 percent of the median home sales price, based on a 20 percent down payment and current mortgage rates.

That means a family earning the median income of $61,000 could afford a $292,000 home, according to the NAR, based on a median home sales price of $175,000.

"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," said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. "For buyers who've been on the sidelines and have good jobs, the market has never looked more favorable."

South posts biggest sales increase

Pending home sales rose most sharply in the south, increasing 8.5 percent in March over the previous month and up 7.7 percent over March 2008. Monthly pending home sales increased 3.9 percent in the West, but declined in the Northeast and Midwest by 5.7 percent and 1.0 percent, respectively.

The Pending Home Sales Index is a percentage-based score where 100 indicates the average level of sales activity in 2001, the first year of the index. By that measure, pending sales in the South and West were strongest, at 93.2 and 93.1 respectively, and weakest in the Northeast, where the index stood at 59.5, down almost 25 percent from a year before. The other three regions all showed modest increases in the index compared to one year before.

The index is based on signed sales contracts where the transaction has not yet been completed. Pending sales are typically finalized within one to two months, according to the NAR.