NAR: Tax credit boosts pending real estate sales

The number of homebuyers signing purchase contracts rose for the third straight month in April, according to a report by the National Association of Realtors.

The association’s Pending Home Sales Index jumped to 110.9, a 6 percent month-to-month increase over March’s upwardly revised index of 104.6, the report said. Year-over-year, April’s index was up 22.4 percent.

An index of 100 indicates the average contract activity in the index’s base year, 2001, which was a record year for existing-home sales, the report said.

The association attributed the surge in sales to the federal homebuyer tax credits for first-time and repeat buyers. In order to qualify for one of the credits, homebuyers had to have signed a purchase contract by April 30. Contract activity in April was as strong as it was in October, before the tax credit’s original deadline, NAR said.

"There were concerns that only a small pool of buyers were left to take advantage of the tax credit extension. But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales," said Lawrence Yun, NAR’s chief economist, in a statement.

"The homebuyer tax credit brought close to 1 million additional buyers into the market, which is now helping the trade-up market and has significantly improved the inventory situation," Yun added. "This stabilized home prices more quickly and has preserved about $900 billion in home equity; in turn, that is keeping additional households from going underwater and risking foreclosue."

Regionally, the index rose the most year-over-year in the South and Northeast. The South shot up 31.3 percent to 123.9, while the Northeast saw a 24.5 percent jump to 97.9. The Midwest rose 17.9 percent from April 2009, to 104.2, while the West increased 12 percent to 107.9.

The pending home sales index is based on contracts signed that have yet to close. In order to qualify for the tax credit, transactions have to close by June 30. While closings typically take place one to two months after contract, short sales and ongoing problems with appraisals could delay the process past the deadline, NAR said. The association has therefore "asked Congress to provide flexibility on the deadline for closing," NAR said.

In the association’s latest economic outlook, NAR expects new-home sales to jump 18.5 percent this year and 26.8 percent in 2011. Those figures were 6.9 percent and 42 percent, respectively, in NAR’s previous forecast. The association’s predictions for existing-home sales remained largely unchanged: a 4.5 percent increase this year and a 5.1 percent rise next year.

The association’s projections for existing-home prices are somewhat less optimistic this month: NAR foresees a 1.2 percent jump this year and a 3.4 percent jump next year (compared with 2.5 percent and 3.7 percent, respectively, in the previous forecast).

NAR’s expectations for new-home price increases this year fell to 0.5 percent, from 3.5 percent in the last forecast. Nevertheless, the association foresaw a rosier future for new-home prices in 2011, forecasting a 5.4 percent jump (compared with 4.7 percent in the last forecast).

The association also adjusted its forecast for 30-year fixed-rate mortgages downward, to 5.2 percent this year and 5.8 percent next year (compared with 5.3 percent and 6 percent predictions last month). NAR forsees unemployment will remain about the same at 9.8 percent this year and 9.5 percent in 2011.

"The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs," Yun said.

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