The National Association of Realtors' Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in November, fell 16% from an upwardly revised 114.3 in October. Though large, the drop was not unexpected, given the first-time home buyer tax credit – originally slated to expire at the end of November – created a surge in activity in the preceding months.
November's index reading of 96 was still 15.5% higher than it was in November 2008, when it was 83.1.
‘The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own," says NAR's chief economist, Lawrence Yun. "We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.
Buyers who have a contract in place to purchase a primary residence by April 30 have until June 30 to finalize the transaction to qualify for the tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.
The PHSI in the Northeast dropped 25.7% to 74.4 in November (14.7% above a year ago). In the Midwest, the index fell 25.7% to 82 (9.2% higher than a year ago). Pending home sales fell 15% in the South to an index of 97.8 (14.7% higher than a year ago) and 2.7% in the West to 124.6 (21.4% above last year).
Yun projects an additional 900,000 first-time buyers will qualify for the extended tax credit in addition to about 2 million who have already purchased; 1.5 million repeat buyers also are expected to benefit from the credit.
"Many trade-up buyers, who have historically timed their purchase based on school-year considerations, will have to accelerate their buying plans if they need the tax credit to make a trade," Yun says.
Repeat buyers do not have to sell their existing home to qualify for the credit, but they must occupy the home they buy as their primary residence.
SOURCE: National Association of Realtors