NAR Expects Home Sales to Surge

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If what they say is true about how the real estate market lags behind other indicators of economic health, then maybe we can finally believe that the U.S. is reliably on a path of economic recovery.

The National Association of Realtors’ “pending” home sales measure for October, released this week, shows that the U.S. housing market has already started on a big rebound.

October’s numbers show a “positive trend”, as the index climbed by 10.4% to 89.3% from a month earlier, which is about 20% lower than October 2009, though the NAR says that last year’s numbers were largely a product of the homebuyer’s tax credit. It’s what the future holds that economists and homebuyers should be looking at, though.

The NAR defines its Pending Home Sales Index as “a leading indicator for the housing sector, based on pending sales of existing homes.” The organization notes that “a sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.”

In real speak, that means the index actually looks at the health of the nation’s housing market two months down the road, using about 20% of all home purchases as a bellwether for what’s going to happen in the short to medium term. Right now, the NAR is saying that all arrows are pointing up – and that the housing market can expect solid growth starting in early 2011 even if existing home sales were down by 2.2% in October, as the numbers show.

“It is welcoming to see a solid double-digit percentage gain, but activity needs to improve further to reach healthy, sustainable levels, says Lawrence Yun, NAR’s chief economist. “The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011.”

One possible fly in the ointment to a full-blooded housing recovery is the potential loss or erosion of the home mortgage tax deduction. The White House’s deficit commission recently advised cutting the popular deduction for taxpayers who make their mortgage payments, though that action failed to earn the needed 14 committee votes to bring the proposal up for Congress to vote on. While the NAR’s Yun says that in the near term, “home sales will continue to climb from their cyclical low this past summer,” any tinkering with the mortgage deduction could send the housing market reeling.

“Even so, we now have some consumer concerns regarding the mortgage interest deduction, an important component in housing affordability,” Yun said. “Preliminary results of a new survey show that nearly three out of four home owners, and two out of three renters consider the mortgage interest deduction to be extremely or very important to them. Homeowners already pay between 80% and 90% of all federal income taxes, and an additional tax burden would hurt them and the economic recovery, so we have a reasonable hope that it will not be changed.”

If there’s no action on the home mortgage deduction, the NAR expects the housing market to rise slowly but steadily in 2011.

So, if you’re in the market for a new home, now is the time to get a good cash deposit ready and jump while interest rates are still reasonable (at 4.878% right now, according to the BankingMyWay Weekly Mortgage Rate tracker.

Finally, a ray of light in the housing market – just in time for 2011.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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