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After holding fairly stable for a year, pending home sales declined in the face of job losses and an eroding economy, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 4 percent to 82.3 from a downwardly revised reading of 85.7 in October. It is 5.3 percent below November 2007 when it was 86.9. The current index is the lowest since the series began in 2001.

Lawrence Yun, NAR chief economist, says a weakening was inevitable. “Mounting job losses and very weak consumer confidence deterred home buyers from signing contracts in November,” he says. “December’s housing market activity could be comparably lower due to ongoing problems in the economy, so a real estate-focused stimulus plan is urgently needed.”

A Look By Region

Here’s a closer look at how Pending Home Sales Index fared regionally.

  • Northeast: dropped 7.2 percent to 63.2 in November and is 14.6 percent below a year ago.
  • Midwest: fell 6.7 percent to 74.2 and is 10.1 percent below November 2007.
  • South: declined 2.2 percent to 85.3 in November and is 12.7 percent below a year ago.
  • West: down 2.4 percent to 101.2 but remains 19.3 percent higher than November 2007.

NAR: Stimulus Package Needed

Yun says the outlook will depend heavily on the stimulus package. “With a proper real-estate focused stimulus measure, home sales could rise more than expected, by more than 10 percent to 5.5 million in 2009, and easily begin to stabilize home prices in many parts of the country,” Yun says.

In turn, stable home prices will lessen foreclosure pressures and lay the foundations for a solid economic recovery so that the nation’s 75 million home owners regain confidence, he adds.

NAR President Charles McMillan says there can’t be an economic recovery without a focus on housing.

“It’s crucial for Congress and the new administration to move quickly to remove impediments and offer home buyers the incentives they need to tap into today’s historic low mortgage interest rates,” he says.

NAR advocates expanding a $7,500 tax credit to all home buyers and eliminating the repayment feature, and permanently raising loan limits to bring down interest rates for many buyers in high-cost areas.

“We also need to expedite short sales and unclog the mortgage pipeline,” McMillan says.

The 30-year fixed-rate mortgage should hold fairly steady through the first half of the year and rise slightly in the second half, according to NAR’s forecast. NAR’s housing affordability index, which looks at the relationship between home prices, mortgage interest rates and family income, is on track to match a record high set in 1972.

The impact of mortgage interest rates declining to near 50-year lows in December is not reflected in current PHSI data.

“The unique housing affordability conditions in today’s market underscore the opportunity in giving consumers the necessary incentives to stimulate our economy through a housing recovery,” Yun says.

Source: NAR