Pending Home Sales Index Approaches “Tax Credit Stimulus” Levels
Many U.S. homes went under contract in October, according to new data from the National Association of REALTORS®.
The October Pending Home Sales Index (PHSI) reached 104.8. The reading is 5 percent higher as compared to September 2012 and represents a 13.2 percent jump from October 2011.
This is the highest level since April 2010, the last month of that year's $8,000 federal home buyer tax credit program.
Low Mortgage Rates Spur Home Sales
NAR cited a more favorable U.S. economy and low mortgage rates as the impetus for the Pending Home Sales Index gains. Consistent job creation and growing consumer confidence have encouraged home buying activities nationwide, with demand for homes at multi-year highs.
More purchasing power has been a factor, too.
Today's ultra-low mortgage rates have offset home prices gains in many U.S. markets; gains which would typically harm home affordability. And, with rents still rising nationwide, the costs of owning a home can be less than a comparable rental.
Assuming Freddie Mac's 3.32% average 30-year fixed rate mortgage, a $200,000 mortgage costs $878 monthly.
Also, homes can be purchased with $0 money down with the VA, or 3.5% down via the FHA -- both of which currently feature lower mortgage rates than does Freddie Mac.
Pending Home Sales Index Varied By Region
Looking at the pending home sales figure on a regional level, we see evidence of the old adage "all real estate is local".
Region-by-region, the Pending Home Sales Index varied :
- Northeast Region : -0.1% in October, due in part to the effects of Hurricane Sandy; +13.3% annually
- Midwest Region : +15.6% in October; +20.0% annually
- South Region : +5.5% in October; +17.4% annually
- West Region : -1.1% in October, due in part to limited home inventory; +0.9% annually
The notes on West Region "inventory" should not be overlooked. Home supply is at multi-year lows with buyers rushing to buy and sellers waiting to sell. Multiple-offer situations are becoming more common and builders are slow to add new supply, lest there be an abundance of homes for sale.
It all adds up to higher home prices for 2013.