Pending Sales Rise

Provided By Realty Times
Pent-up demand could finally be working its way through the market. Pending home sales rose sharply in October according to the National Association of Realtors®.

The latest statistics reveal that contract signings rose 10.4 percent for the month and are now 9.4 percent above 2010 levels.

Regionally, results were mixed but overall still positive. The Midwest led the way jumping a staggering 24.1 percent in October. The Northeast also had double-digit gains at 17.7 percent. The South was up 8.6, while the West was the only region to see a decline, though it was just a marginal 0.3 percent drop.

The largest year to year rise is seen in the Midwest as well, which is currently 13.2 percent above October 2010 levels.

What has spurred this upswing? NAR's Chief Economist, Lawrence Yun, thinks it is partially due to the high levels of affordability we now see in areas all across the country. He feels the recent pending home sales report is a hopeful sign. "Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows and there is a pent-up demand from buyers who normally would have entered the market in recent years. We hope this is indicates more buyers are taking advantage of the excellent affordability conditions."

Affordability is calculated by figuring an income to cost ratio for homes. What is the median household income for your area? What is the median home price?

TIME magazine reported at the end of November that during the third quarter of this year families earning a median income of $64,200 could afford 72.9 percent of the homes sold.

The areas seeing the highest levels of affordability are Toledo, Ohio - 90.9 percent; Youngstown, Ohio/PA - 90.9 percent; Indianapolis-Carmel, Indiana - 90 percent; and Ogden-Clearfield, Utah - 89.8 percent.

Pending sales were up in the face of otherwise negative reports. Home prices have continued to decline and are now at 2003 levels. Builders still remain cautious when it comes to new projects.

It is important to keep in mind, too, that recent months have proven that pending sales don't always translate into actual sales. Many pending contracts have fallen through due to appraised values coming in much lower than loan amounts, nulling the mortgage offer. Other buyers are unaware of the stringent lending standards now in place that require high credit score for qualification.

"Although contract signings are up, not all contracts lead to closings. Many potential home buyers inadvertently hurt their credit scores and chances of getting a mortgage through easily averted actions, such as cancelling an old credit line while taking on a new one," Yun said. "Such actions could unwittingly prevent buyers from obtaining a mortgage if their credit score is close the margins of qualifying, or they might get a loan but with less favorable terms."