Pending home sales climbed in March with many first-time buyers taking advantage of sharply discounted prices and low interest rates, according to the National Association of Realtors.
The pending home sales index, a forward-looking indicator based on contracts signed in March, increased 3.2% month-over-month to 84.6 and sits 1.1% higher than March 2008.
"This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit," enacted by the Obama administration for first-time home buyers purchasing a home on or after Jan. 1, 2009, and before Dec. 1, 2009, says Lawrence Yun, NAR chief economist. "We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around."
The Pending Home Sales Index in the South rose 8.5% to 93.2 in March and is 7.7% above a year ago. In the West, the index increased 3.9% to 93.1, while the index in the Northeast fell 5.7% to 59.5. Pending home sales in the Midwest also slipped a slight 1.0%, posting an index reading of 82.3.
NAR's Housing Affordability Index remained near record highs in March. The affordability index was 166.7 in March - down from an upwardly revised record of 174.4 in February due to higher home prices in March. The index remains 30.8 percentage points higher than a year ago.
"Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment," says NAR president Charles McMillan. "For buyers who've been on the sidelines and have good jobs, the market has never looked more favorable."
NAR says a median-income family, earning $61,100, could afford a home costing $291,600 in March with a 20% downpayment, assuming 25% of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small down payments are roughly 80% of that amount. The affordable price was notably higher than the median existing single-family home price in March, which was $174,900.
Nonetheless, the payoffs of increased home buying activity aren't showing yet.
A separate report released Monday by the Commerce Department shows construction spending on residential projects fell 4.2% in March. But overall construction spending rose in March, boosted by spending in nonresidential buildings and public works. Economists were expecting a 1.5% decline, according to a Market Watch report, but overall spending actually increased 0.3%, as January and February spending was also revised higher.
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