How Are Existing Home Sales Doing?

I like to stick with more local articles, but wanted to pass along this article from RISMEDIA regarding existing home sales in December 2010. There was a double digit jump of 12.3%.

Existing-home sales rose sharply in December 2010, when sales increased for the fifth time in the past six months, according to the National Association of REALTORS®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 12.3% to a seasonally adjusted annual rate of 5.28 million in December from an upwardly revised 4.70 million in November, but remain 2.9% below the 5.44 million pace in December 2009.

Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

The national median existing-home price for all housing types was $168,800 in December, which is 1.0% below December 2009. Distressed homes rose to a 36% market share in December from 33% in November, and 32% in December 2009. “The modest rise in distressed sales, which typically are discounted 10 to 15 percent relative to traditional homes, dampened the median price in December, but the flat price trend continues,” Yun explained.

Total housing inventory at the end of December fell 4.2% to 3.56 million existing homes available for sale, which represents an 8.1-month supply at the current sales pace, down from a 9.5-month supply in November.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said buyers are responding to very good affordability conditions despite tight mortgage credit. “Historically low mortgage interest rates, stable home prices, and pent-up demand are drawing home buyers into the market,” Phipps said. “Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.71% in December from 4.30% in November; the rate was 4.93% in December 2009.

A parallel NAR practitioner survey shows first-time buyers purchased 33% of homes in December, up from 32% in November, but are below a 43% share in December 2009.
Investors accounted for 20% of transactions in December, up from 19% in November and 15% in December 2009; the balance of sales were to repeat buyers. All-cash sales were at 29% in December, compared with 31% in November, but up from 22% a year ago. “All-cash sales have been consistently high at about 30 percent of the market over the past six months,” Yun said.
Single-family home sales jumped 11.8% to a seasonally adjusted annual rate of 4.64 million in December from 4.15 million in November, but are 2.5% below the 4.76 million level in December 2009. The median existing single-family home price was $169,300 in December, down 0.2% from a year ago.

Existing condominium and co-op sales surged 16.4% to a seasonally adjusted annual rate of 640,000 in December from 550,000 in November, but remain 5.2% below the 675,000-unit pace one year ago. The median existing condo price was $165,000 in December, which is 7.4% below December 2009.

Regionally, existing-home sales in the Northeast jumped 13.0% to an annual pace of 870,000 in December, but are 5.4% below December 2009. The median price in the Northeast was $237,300, which is 1.4% below a year ago.

Existing-home sales in the Midwest rose 11.0% in December to a level of 1.11 million, but are 4.3% below a year ago. The median price in the Midwest was $139,700, up 3.3% from December 2009. In the South, existing-home sales increased 10.1% to an annual pace of 1.97 million in December, but are 2.5% below December 2009. The median price in the South was $148,400, unchanged from a year ago. Existing-home sales in the West surged 16.7% to an annual level of 1.33 million in December, but remain 1.5% below December 2009. The median price in the West was $204,000, down 5.6% from a year ago.

Pre-sale Renovations: Home Seller Do's and Don'ts

You’ve probably seen those depressingly cheery home-themed TV shows: a couple needs to sell their house, they have an outdated kitchen, and a designer comes in and proceeds to convince them to renovate the kitchen into a stainless-steel-clad shrine to culinary greatness—for tens of thousands of dollars. In an ideal real estate market, that would add value, but in today’s market, expensive pre-sale renovations, for the most part, aren’t worth it. The numbers bear this out: In general, a home remodel will cost quite a bit more than you’ll get back when you sell; remodels done in 2010 will only recoup 60% of their price when the house is sold, according to Remodeling magazine’s 2010 Remodeling Cost vs. Value survey, done in partnership with the National Association of REALTORS® (NAR).

Two of the areas that potential buyers are often most pressured to remodel before selling are the kitchen and bathroom. Here, we’ll tackle both of those rooms, and let you know what to do—and what to avoid—when considering a pre-sale renovation:

Kitchen-Don’t put in expensive professional-grade cook’s appliances. You may choose a tricked-out, $10,000 Wolf stove, but the buyer may be a loyalist to Viking. Or, even worse, the potential buyer might be a take-out addict.

-Do, however, service the appliances you have, so that they work perfectly. And, if you have seriously outdated appliances that can be replaced for $1,000 or less (like swapping a dingy old fridge for a basic new one), that’s a good idea. Similarly, if there are any appliances that you lack, which most buyers consider essential, it makes sense to buy one (like a dishwasher—you can get a nice model for under $1,000).

-Don’t replace your cabinetry entirely—even if it’s a little outdated. It’s just too subjective. You might think sleek, white Scandinavian cabinets are the way to go, but you’ll be in a bind if your potential buyer prefers dark wood.

-Do invest in cabinet refacing if your cabinets are extremely outdated. Many refacing companies will give your cabinets a fresh façade for well under $2,000, and it’s a good investment in creating a positive impression of the room without doing a pricey knock-down.

-Don’t go granite crazy. Or marble. Or etched-Murano-glass-accented tile. Spending thousands of dollars on a new countertop and backsplash is downright dangerous, as there are so many different options these days, it’s impossible to find one that will please most people.

-Do hire a professional cleaning company to come in and make what you have sparkle. While this won’t magically make your tile look magazine-spread-worthy, it will certainly make it look a lot better, as discoloration from age often makes tile look even worse.

Bathroom-Don’t do expensive tub/shower repairs or replacements. Just like with the big-ticket kitchen fixes, this is a matter of taste. If you put in a round jetted tub, what if the buyer wants square? And is an amethyst-crystal steam shower really something everyone will love?

-Do replace dated bath and shower fixtures; this can be done generally quite inexpensively. For instance, if you have a 30-year-old, tiny showerhead, replacing it with a large, rainwater-style model will lend a subtle spa-like quality without costing a lot.

-Don’t replace your smallish vanity with a new, built-in model. A lot of remodelers emphasize the intrinsically relaxing qualities of having all your toiletries, towels and even reading material beautifully organized in one big unit made of high-end wood, marble and chrome. And it is certainly beautiful. But it’s also a risky choice, and a matter of taste.

-Do freshen up the vanity area. Invest in a big mirror and put bright lights over it. And a few hundred dollars spent on a nice faucet is well worth it, as, like the showerhead, it’s a true basic—and updating the basics, in most homes and markets, is all you should be focusing on.

Other tips for redoing your kitchen and bathroom frugally

Kitchen:-Declutter your counters. A disorganized kitchen is a buyer-deterrent. Clean up the counters and pare down countertop items to the essentials—toaster, microwave, coffee pot and not much more than that.

-Keep your pantry and cabinetry clutter-free too. You don’t have to alphabetize your cereals—just know that potential buyers will probably open those cabinets, so they won’t want a ladle falling out on their head.

-Give your kitchen table or breakfast bar some life. It’s simple—placemats, a colorful vase or two and a tasteful flower arrangement will reinforce the idea that the kitchen is the heart of the home.

Bathroom:-If you want to add a little life to the wall, try a simple, straight-lined wood or stainless-steel floating shelf with a few candles on it. It’s an elegant, boutique-hotel touch that doesn’t cost much.

-Toss down a colorful floor mat. Bathrooms are often devoid of color; this is a great way to add that color, and a little warmth.

-Again, clear clutter. Even your beauty essentials shouldn’t be on the counter if you’re in the open house stage.

Housing Update for 2011

Housing will see gradual improvements in activity this year as the nation’s economy and job market continue to move to higher ground, establishing momentum that will produce more considerable gains in 2012, according to economists who appeared at the NAHB International Builders’ Show in Orlando on January 12.
“This year’s spring selling season will be better than last year’s,” said NAHB Chief Economist David Crowe, with job growth providing a stronger stimulus in the housing market than last year’s tax credits for home buyers.
Crowe forecasted 575,000 single-family home starts in 2011, a 21% climb over an estimated 475,000 units started in 2010, which in turn showed a 7% gain from the 442,000 homes started in 2009.
Multifamily, which is poised to profit from a disproportionate number of Gen Y members moving into the housing market, has seen the bottom of the cycle, he said, and will see its starts rise 16% this year to 133,000 units, with a further 53% increase in 2012 to 203,000 units.
Builders’ access to the credit they need to start new homes remains the fragile component of the NAHB forecast, Crowe said. So far, small builders have experienced extreme difficulty in obtaining financing, and rectifying the situation as soon as possible is the top priority of the association.
More encouraging is a rebound in the confidence of consumers, who mid-2010 “froze in place, faced with a lot of uncertainty,” he said. A recent pickup in durable purchases for such items as automobiles and furniture indicates that consumers are less afraid today of losing jobs and income.
The U.S. economy will receive a boost from the massive tax package enacted at the end of last year, he said, including more income going into the pockets of wage earners thanks to a one-year 2% reduction in Social Security taxes. This will contribute to the gross domestic product strengthening from the 2.5% range to 3.5% to 3.8% by year’s end.
New-home sales, Crowe projected, “will struggle” but begin following employment gains, reaching 405,000 for the year, up from an estimate of about 320,000 for 2010.
The housing recovery will start up slowly this year, he said, because it will be driven by the relatively low housing production Plains states, with Texas the most powerful of the bunch. Traditional bulwarks of housing activity such as California and Florida, on the other hand, will not be among the states whose housing markets recover the fastest.
In addition to stimulative fiscal and monetary policy, Freddie Mac Chief Economist Frank Nothaft said that housing affordability and demographic trends will help support growing housing demand.
Citing research from the Harvard Joint Center for Housing Studies, Nothaft said that households should be growing at an average annual rate of 1.2 million to 1.5 million over the next five to 10 years, suggesting the need for a sharp increase in housing production; half of the 500,000 to 600,000 starts of the past two years were needed just to replace the number of homes being removed from the housing stock.
While there will continue to be supply overhangs in some important large markets, by and large the housing price slump should bottom out by the middle of this year, he said, and price increases are already occurring in some local areas. That should attract prospective buyers who have been procrastinating until they see prices hit bottom.
“Potential buyers who have resources to buy but want to buy at the bottom are likely to start coming into the market in the springtime,” he said, which for fence sitters will be “the time to come into the market.”
Fixed-rate mortgages will move up from their current 4.75% to the 5.75% range by the end of this year, he forecasted. This will push total single-family mortgage originations down about 30% below the 2010 level as refinancings fall sharply in the face of rising mortgage rates.
While a 20% increase in housing production in 2011 is good news for housing, to put things in perspective, Nothaft said that this gain is from an extremely low level, with single-family production declining about 80% from peak to trough.

What Is Happening With Rates?

Interest rates are starting to rise and it may be a surprise to some. The overall economy is not recovering as fast as I think anyone would like, but I am hopeful we will start to see some improvement over the next few months. Below is an expert's take on what is happening with rates at the present time and a forecast for 2011.

2011 Interest Rate Forecast

Jan 12, 2011 (www.bankrate.com)

First the bad news: That 4.2 percent 30-year fixed mortgage rate some borrowers were lucky enough to snag in November? It's history.

Now the good news: Despite a weeks-long run-up from that trough, mortgage rates are still historically low and aren't expected to rise more than another half percent -- or less -- in 2011, according to economists and analysts.

"The bottom in rates is behind us," says Freddie Mac's Chief Economist, Frank Nothaft. "That's not to say today's rates are high. They're not. Aside from what we experienced the last couple of months, these are the lowest rates we have seen since the 1950s." Still, Nothaft says, "I do think they will be higher at the end of 2011 than (the end of) 2010." Cameron Findlay, chief economist at LendingTree, believes 30-year fixed rates will rise to about 5.25 percent in 2011. "We don't expect any significant rise from that point," Findlay adds. The Mortgage Bankers Association, in its most recent rate forecast on Dec. 17, is a tad more bearish, predicting rates will climb to 5.5 percent by the end of 2011 and "above the 6 percent mark" in 2012.

What caused rates to bounce off their November lows? Answer: Inflation fears.
The Federal Reserve's quantitative easing program, or QE2, was designed to inject massive amounts of capital into the nation's banks. The goal: banks will be so brimming with cash they will start making more long-term loans, such as mortgages. However, inflation fears stoked investors to abandon bonds, which had the effect of pushing up 10-year Treasury yields in recent weeks. Mortgage rates track those yields. Further, the extension of the Bush tax cuts in December 2010 encouraged investors to choose stocks, yet another reason bonds started paying higher rates.

"Inflation is a real concern and investors are trading on that," Findlay says. "And it is all driven from the excess liquidity. We can't maintain that level of excess liquidity long-term without it creating inflation." Though the higher mortgage rates caught consumers off guard, but today's levels more closely mirror a more normal market, economists contend. Rates stuck in the low- or mid-4 percent range would mean the economy is declining and probably in a double-dip recession. "We have gotten some encouraging economic news over the last couple of weeks and it looks like we will see income growth," Nothaft says. "We will see more job growth and we will be in an environment where core inflation will remain in check at a relatively low level."

NATIONAL RATE SURVEY RESULTS
Jan 13, 2011 (Bankrate.com)

30-year Conventional:
4.94% -- with avg. points: 0.38 pts

15-year Conventional:
4.29% -- with avg. points: 0.38 pts

30-year FHA:
4.875% -- with avg. points: 0.40 pts

5-year Conventional ARM:
3.88% -- with avg. points: 0.38 pts

Kiss 4% mortgage rates goodbye

Kiss 4% mortgage rates goodbye

What is going on with Mortgages?

Mortgage Market News for the week ending January 7, 2011

Events This Week:
Employment Rose
ISM Services Higher
Factory Orders Rose
Manufacturing Up
Events Next Week:
Tues 1/11 3-yr Auction
Wed 1/12 Beige Book 10-yr Auction
Thur 1/13 PPI 30-yr Auction
Fri 1/14 CPI Retail Sales Industrial Prod.


Mortgage Rates Little Changed
The volatility in mortgage rates continued during the first week of the year. Prior to Friday's Employment report, nearly all the economic data was stronger than expected, which was negative for mortgage rates. Rates improved after the Employment data, though, and ended the week nearly unchanged.
Over the last two months of 2010, investors began to focus on a trend toward stronger economic growth, which helped push mortgage rates higher over that period. Nearly every economic report released this week showed greater than expected improvement from last month, including Services, Manufacturing, and Construction. Stronger economic growth and job creation is positive for home sales, but it also results in higher inflation, which leads to higher mortgage rates.
The condition of the labor market is among the most important economic data every month, and this week there was some additional suspense. On Wednesday, ADP, a private payrolls firm, released its forecast for private sector job growth in December, and it was for an increase of an enormous 300K jobs. The ADP forecast has always been considered an imprecise labor market predictor, but the sheer magnitude of the ADP forecast caused many investors to increase their expectations for the government's monthly Employment report. Friday's data showed that the economy added 103K jobs in December, and revisions to prior months added an additional 70K jobs. The combined total of 173K jobs was close to the original consensus estimate, but was below the number that some investors expected after the ADP forecast, and mortgage rates improved after the news. Another big surprise came from a drop in the Unemployment Rate to 9.4% from 9.8% in November, far below the consensus forecast of 9.7%, and the lowest level in 19 months. Economists suggest that seasonal factors may have played some role in the large decline in the Unemployment Rate, so next month's results will be highly anticipated.


Also Notable:
The four-week average of Jobless Claims fell to the lowest level since July 2008
The ISM Services index rose to the highest level since May 2006
The Fed's Hoenig warned that stimulus may lead to undesirably high levels of inflation
The Treasury will auction $66 billion in 3-yr, 10-yr, and 30-yr securities next week


Average 30 yr fixed rate:
Last week:
+0.01%

This week:
+0.01%

Stocks (weekly):
Dow:
11,700
+100
NASDAQ:
2,700
+25


Week Ahead
The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales, an important indicator of economic growth, will be released on Friday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic growth, is also scheduled for Friday. The Fed's Beige Book, the Trade Balance, Import Prices, and Consumer Sentiment will round out the week. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.

What can home buyers expect from the market in 2011?

The drumbeat from the housing community was loud and clear in 2010: There was never a better time to buy a home. For most of the past 12 months, home prices tumbled, mortgage rates ticked downward, and the inventory of available traditional and distressed homes was plentiful.

But would-be buyers, even if they were able to overcome job worries, found that the hurdles to obtain a loan were formidable. They remained on the sidelines, and housing analysts opined that if the broader economy improved and unemployment fell, pent-up demand would be unleashed, credit guidelines would ease and home sales would improve.

As the New Year begins, that guarded optimism has turned into uncertainty, thanks to a combination of rising mortgage rates, tighter underwriting guidelines and sweeping government regulation. As a result, it’s unlikely to get any easier and may, in fact, get much more difficult to buy a home in 2011.

“From a credit standpoint, I tend to think we’re toward the bottom of that cycle,” said Bob Walters, chief economist for Quicken Loans Inc. “The bad news is, I don’t think it’s going to get a lot better in 2011. You’ll hear a lot more noise pressuring the industry to ease guidelines, and you’ll hear from the industry that we don’t want a redo of what’s happened.”

Looming large over the mortgage market are provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that have yet to be finalized. Among them is a requirement that mortgage lenders maintain some “skin” in the game on the mortgages they originate by holding at least 5% of the credit risk rather than bundling the loans and selling them off entirely.
The goal is to discourage a repeat of risky past practices, but the legislation makes an exception to the risk-retention standard for what is labeled a “qualified residential mortgage.” It is the still-unspecified definition of what’s become the industry’s latest acronym to digest, QRM, that has lenders in an uproar.

If a very strict definition is applied by regulators, and a final rule isn’t expected until the spring, it could become more difficult, and more costly, for home buyers to secure mortgage financing.
“People have some very different ideas of how to define this,” said Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association. “Some would say if it doesn’t have a 30 percent down payment, it’s not a QRM. For a first-time home buyer, that would really be eye-opening. It definitely has the potential to turn the market upside down. “This could dramatically tighten underwriting much more than what the lenders have already done. It’s going to make it even tougher to work through the housing overhang.”

Wells Fargo has told regulators it supports exempting mortgages with a 30% down payment. Community banks worry such a strict definition would curtail home mortgage lending. “If you have to have 30 percent down, the American dream would become the American fantasy,” said Nick Parisi, a senior vice president at Standard Bank and Trust Co. in Hickory Hills, Ill.
Additional regulation on mortgage bankers will mean a thinning of their ranks, weeding out the unscrupulous players. But it also will lessen consumers’ ability to comparison-shop widely for the best home mortgage product. “That means less competition, and generally, less competition is not good for the consumer,” said Bob Walters, chief economist for Quicken Loans Inc. “It might mean that your interest rate over time is a little higher. A less competitive industry has to work less hard.”

Tighter lending requirements already have steered 40% of buyers to secure Federal Housing Administration-backed loans, which carry their own set of fees. FHA-backed loans are exempt from the Dodd-Frank provision.

Another new wrinkle to the mortgage market is that beginning in March, Freddie Mac will raise fees for mortgages sold to Freddie that carry higher loan-to-value ratios. The additional fees will vary depending on the borrower’s credit score and the loan-to-value ratio, but in some cases the upfront fees will increase by as much as 0.75% of a loan’s balance. If a lender passes along a 0.25% fee to the borrower, it could add about $10 to the monthly payment on a $200,000 mortgage, according to Freddie Mac.

In late December, Fannie Mae announced its own series of considerable loan-level price adjustments, effective April 1, for mortgages with greater than a 60% loan-to-value that will apply even to consumers with credit scores above 700.
Loan fees aren’t the only item going up: So is the cost of money itself. The average rate on 30-year, fixed-rate mortgages has been below 5% since early May, but economists predict those days are nearing an end.

General guidance on mortgage rates for a 30-year, fixed-rate mortgage call for them to stay under 6% for the year and likely falling somewhere between 4.75% and 5.5%. Still, that could be a jolt to buyers on the sidelines who watched rates drop to as low as 4.2% in the fall.

What is a Realtor's Perspective for Selling Your Home in Today's Market?

I wanted to share this article I received from a friend that I thought was "spot on" for selling your home in today's market. Nick Segal is a Realtor out of Los Angeles, California and had some good thoughts. When I go on a listing appointment, feel it is always best to be honest and upfront regarding what I think a home will sell for. The market does not lie and find it best to go with past statistical data in a neighborhood over the last three months. Of course, there are unique homes that need to be priced slightly different based on their characteristics, but if you aren't getting at least two showings a week in today's market, your home is overpriced.

In Nick's words: One of the most alluring aspects of owning real estate is the prospect that people have an opportunity to become richer just by living in their very own home.
It's understandable then that when realtors are faced with the task of defining the value of any given home, sellers hang on our every word, hoping that the number we offer up will satisfy their insatiable thirst for the highest value possible. This awareness brings forth a multifaceted dilemma that truly haunts both realtors and sellers alike.

"You can't handle the truth."
When it comes to speaking with our sellers about the value of their homes, oftentimes sellers crave hearing what they want hear, not what they need to hear. It makes sense. All sellers want to have a professional confirm their beliefs that their home is worth the amount they've already formulated in their minds, regardless of whether or not that price was based mainly on emotion or desire.

Unfortunately, fantasy is not reality.
If a realtor provides a seller with a price for their home that very well may be the accurate number, but is one that the seller deems as too low, there's a good chance the realtor has just alienated him or herself right out of the opportunity to represent the seller. Considering that realtors don't get paid unless we are part of the transaction, we are faced with the choice to either:
Tell the truth and perhaps take ourselves out of the equation, or
Tell the seller what they want to hear to get the listing, at the risk of creating false expectations, ultimately putting them in a compromising position of negotiation down the line. (8 out of 10 times, overpricing a property ends up costing a seller more than if they had effectively priced their home at the outset - but that's for another, future blog post.)It's practically a given that most sellers interview more than one broker when deciding who will represent them (which we feel is quite wise), meaning we know that the odds are quite high that if they interview enough brokers, one or more will undoubtedly tell the seller that inflated number that they want to hear in order to get the listing.

So, What's the Right Number?
The housing market is constantly changing, which means the "right" price for a house will vary based on a few, specific factors: average prices of homes currently on the market in that same neighborhood, the number of homes currently in escrow, and the number of homes that have sold in the past three months.

By analyzing these statistics, a realtor can effectively price a home to sell.
For example, let's say that dozens of homes have sold in a particular area over the past 90 days. This indicates that there's a lot of activity: more homes on the move means higher demand, which leads to higher values and more room to push the envelope with the pricing. On the flip side of that, though, is when you look at recent sales and see single digits for the past few months. Homes aren't flying off the shelves, meaning that one will need to aggressively price the home to get it to sell in that market - perhaps even listing it for less than the rest of competition to attract potential buyers.

Ultimately, a realtor does both him or herself and the seller a disservice by making promises that may be nearly impossible to keep. Both end up unhappy in the end: one with a home languishing on the market with a price too high to sell, and the other with an unhappy client whose expectations haven't been met.

All of this can be avoided by looking at the market objectively and being honest about the value of the home. The numbers don't sugarcoat anything by telling you only what you want to hear: they just tell you simply what is. And while we don't always like what we hear, contrary to that famous quote, people can handle the truth - and it's the realtor's job to provide it.

More Good News For Pending Home Sales

Happy New Year all. I always see the new year as a fresh start and a chance to come up with goals and decisions that help myself and others. I am starting off the new year with some news that I think is positive in our housing market moving forward. As long as we can continue creating jobs in the coming months, we should see pending home sales continue to become stronger. Here's to a great 2011!

Pending home sales rose again in November 2010, with the broad trend over the past five months indicating a gradual recovery into 2011, according to the National Association of REALTORS®. The Pending Home Sales Index, a forward-looking indicator, rose 3.5% to 92.2 based on contracts signed in November from a downwardly revised 89.1 in October. The index is 5.0% below a reading of 97.0 in November 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said historically high housing affordability is boosting sales activity. “In addition to exceptional affordability conditions, steady improvements in the economy are helping bring buyers into the market,” he said. “But further gains are needed to reach normal levels of sales activity.”

The PHSI in the Northeast increased 1.8% to 72.6 in November but is 6.2% below November 2009. In the Midwest, the index declined 4.2% in November to 78.3 and is 7.7% below a year ago. Pending home sales in the South slipped 1.8% to an index of 91.4 and are 7.2% below November 2009. In the West, the index jumped 18.2% to 123.3 and is 0.4% above a year ago.
“If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume,” Yun said. “Credit remains tight, but if lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy.”

The 30-year fixed-rate mortgage is forecast to rise gradually to 5.3% around the end of 2011; at the same time, unemployment should drop to 9.2%.
For perspective, Yun said that the U.S. has added 27 million people over the past 10 years. “However, the number of jobs is roughly the same as it was in 2000 when existing-home sales totaled 5.2 million, which appears to be a sustainable figure given the current level of employment,” he explained.
“All the indicator trends are pointing to a gradual housing recovery,” Yun said. “Home price prospects will vary depending largely upon local job market conditions. The national median home price, however, is expected to remain stable even with a continuing flow of distressed properties coming onto the market, as long as there is a steady demand of financially healthy home buyers.”

Existing-home sales are projected to rise about 8% to 5.2 million in 2011 from 4.8 million in 2010, with an additional gain of 4% in 2012. The median existing-home price could rise 0.6% to $173,700 in 2011 from $172,700 in 2010, which was essentially unchanged from 2009.
“As we gradually work off the excess housing inventory, supply levels will eventually come more in-line with historic averages, and could allow home prices to rise modestly in the range of 2-3% in 2012,” Yun said.

New-home sales are estimated to rise 24% to 392,000 in 2011, but would remain well below historic averages, while housing starts are forecast to rise 21% to 716,000.
Yun sees Gross Domestic Product growing 2.% in 2011, and the Consumer Price Index rising 2.3%.