In November 2009, Freddie Mac announced that mortgage rates were the lowest since records began in 1971. But although the low rates were unveiled then, rates have been very low for quite a while--since the credit crisis and subsequent Federal Reserve support of the secondary mortgage market. These have been tempting many home buyers, and low rates have helped buoy housing sales. Consumers and investors alike closely follow statistics on pending home sales for clues about where the market will go next.
What Are "Pending Home Sales"?
Pending home sales are residential property transactions that have been signed by both parties but that have not yet been closed. Usually, deals are closed a month or two after signing. So pending home sales to some extent predict what is about to happen in the housing market. And, as many economists think that the housing market is likely either to make or break the current economic recovery, indicators such as the National Association of Realtors' (NAR's) Pending Home Sales Index (PHSI) are important for all Americans, whether or not they are home owners.
In October 2009, the PHSI posted its ninth month in a row of rising pending home sales. (That was the first time the index has shown such sustained growth since the NAR began counting back in 2001.) However, a drop in the PHSI index at the end of the year showed that the housing market is still on shaky ground.
The Devil Is in...
Lawrence Yun, the NAR's chief economist, thinks that--as well as great mortgage loan deals--much of 2009's runup of pending home sales was a result of the federal government's home buyer tax credit, which gave qualifying first-time purchasers a windfall of up to $8,000. Previously, that offer was due to expire at the end of November, so anyone who wanted to take advantage of it would have had to have signed contracts earlier in the fall in order to close on time. And that's likely to have artificially inflated the number of transactions in those months.
The tax credit was extended into 2010 and was enhanced so that millions more Americans--and not just first-time buyers--qualify. That may well be enough to boost the index again, but the time lag between signing and closure means that there are likely to be at least a couple of months during which the PHSI will drop again. Mr. Yun explains:
Good Times Ahead?
Yun predicted "self-sustaining housing conditions and firming home prices in most areas around the middle of 2010." With the lowest mortgage rates continuing for now, and the prospect of a substantial and sustainable housing market recovery in the next months, anyone looking to purchase or refinance a home loan would do well to move in on a closing window. Contacting an experienced lender to get a mortgage quote is a simple way to discover your options.