By Rex Nutting, MarketWatchVIEW SOUTH FLORIDA HOMES FOR SALE HERE
WASHINGTON (MarketWatch) -- The pending-home-sales index rose 6.4% in August to its highest level since March 2007, the National Association of Realtors reported Thursday.
The index, which tracks sales contracts signed on existing homes and is designed to forecast actual sales, has risen for seven months in a row for the first time since the gauge was created in 2001, the industry trade group said. Read the full release.
Buyers may be rushing to complete their purchase before Nov. 30 to qualify for an $8,000 tax credit from the federal government. The tax credit is "adding to a more fundamental recovery in demand that reflects low prices and mortgage rates," said economists for UBS Securities.
On Thursday, Freddie Mac reported average mortgage rates fell below 5% for 30-year fixed loans, and to a record-low 4.36% for a 15-year fixed. See full story.
Buyers who've been on the fence could also be jumping in now, after seeing prices rise for several months. Still, credit conditions remain very tight for potential home buyers, with almost every bank reporting that they've tightened up on the criteria to get a loan.
Meanwhile, the Commerce Department reported that spending on construction projects increased 0.8% in August, led by a 4.7% rise in spending on private residential buildings, the largest monthly gain since 1993. August's surprising increase followed a sharp downward revision to July's spending figures, leaving total outlays lower than expected. Read the full government report.
In the past year, construction spending is down 11.7%, while spending on private homes is down 27%.With increases in the past few months, however, residential investment is on track for the first quarterly gain in nearly four years.
The pending home-sales index has been much stronger than existing home sales, which are recorded at the closing of the sale -- usually a month or two after a sale contract is signed. The pending-sales index has risen 19% since December, while closed sales are up about 8%, according to data from the real-estate group.
The NAR has complained that new rules that require an independent appraiser are hurting sales. Banks are also killing many short sales that have been negotiated. (A short sale means selling for less than is owed on the house.)
"The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules," said Lawrence Yun, chief economist for the real-estate agents.
"No doubt many first-time buyers are rushing to beat the deadline for the $8,000 tax credit, which expires at the end of next month," he added. The government is offering a subsidy for first-time buyers, but sales must close before Nov. 30 to qualify. It's taking about two months to close a deal after a home goes under contract.
The real-estate industry is lobbying Congress to extend or expand the home-buyer tax credit. See related story on the rush to capitalize on the home-buyer tax credit.
"Sales will decline when the tax credit expires because we are not yet on a self-sustaining recovery path. It also raises a risk of a double-dip recession," according to Yun. "Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit."
First-time buyers accounted for about 43% of buyers in August, according to a survey conducted by Campbell Communications.
The NAR has estimated that about 2 million buyers will take advantage of the tax credit this year, with 350,000 additional sales resulting. The others would have bought a house even without the subsidy.Rex Nutting is Washington bureau chief of MarketWatch.
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