Signs the Real Estate Market is Recovering

According to the National Association of Realtors (NAR), the number of contract for pending home sales (Pending Home Sales Index, an indicator of what’s to come) has increased for the past six months. We have not seen this kind of action in the history of this index since it began in 2001.

This Index for activity in July increased 3.2% to 97.6 from 94.6 in June, and is 12.0% higher than July 2008 when it was 87.1. It is at the highest level since June 2007, when it was 100.7. The Pending Home Sales Index in the Northeast actually declined 3.0% to 78.8 in July but is 4.7% higher than July 2008.

The momentum seems to be positive with pretty good recovery, but the housing market is far from being back to normal yet. With the inventory numbers decreasing, we are seeing a stabilization in home prices now in several areas. Housing affordability is at its record highs this year, and the stimulus of a first-time buyer tax credit seems to be making a very positive impact on the market.

NAR estimates about 1.8-2.0 million first-time buyers will take advantage of the $8,000 tax credit, bringing to 350,000 additional sales that would not have taken place without the credit, but it is ending by November 30, 2009. It would be a smart decision for the federal government to extend the tax credits and why not actually extend it to all buyers looking to purchase primary residences to continue the momentum?

Lawrence Yun, NAR chief economist said that the RE market clearly turned for the better, across many parts of the country. He expects existing-home sales to rise through the fourth quarter, but he’s concerned with the end of the tax credit. Also, he feels that buyer psychology may be shifting from “Why buy now when I can purchase later” to “I don’t want to miss out on a recovery.”