Home sales may be set to move ahead

Early evidence suggests that despite harsh weather winter during February, the extension of the first-time home buyers tax credit and a newly-instituted credit for repeat buyers are finally having the desired effect.

The Pending Home Sales Index released by the National Association of Realtors increased 8.2% to 97.6 in February, suggesting that existing home sales are poised to rise in March and April.  Pending home sales are counted when a contract is signed, which typically takes four to six weeks to close.  At that time, the transaction is counted as an existing home sales.

NAR chief economist Lawrence Yun, said the improvement is another hopeful sign. “The rise in buyer contact activity may signal the early stages of a second surge of home sales this spring. The healthy gain hints home prices are continuing to flatten,” he said. “We need a second surge to meaningfully draw down inventory and definitively stabilize home values.”

Unlike the last expected expiration of the tax credit, which required that the home close by November 30, the current law states that a contract must be signed by April 30.

Given the uptick in February, it seems likely that we will see further gains in March and April, as potential buyers rush to meet the new deadline.  With mortgage rates heading higher, buyers have an added incentive to move off the sidelines and beat the possibility that further increases in mortgage rates are on tap.

Of course, predicting mortgage rates, which are normally tied very closely to the ten-year Treasury yield, over the short-term is haphazard at best.  However, upbeat economic data released over the past week, has nudged rates higher, and home loans have moved along with it.

Though it seems likely that realtors will be in the sweet spot over the next couple of months, the end of the tax credit could bring a new hangover in the real estate market during the summer.

Increased job security, more reasonable lending standards and a solid economic recovery would go a long way in absorbing excess housing inventory and putting the housing market on a much firmer foundation.