The index of pending home sales decreased 3.5 percent last month after jumping a combined 18 percent in October and November, figures from the National Association of Realtors showed Wednesday in Washington. It was the best back-to-back reading since a buyer tax credit boosted demand in early 2010.
“We’ve had a clear turn toward positive momentum in the housing market,” said Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pa., and the third-most accurate forecaster of pending home sales. “Lower unemployment and higher confidence, coupled with record-low mortgage rates, are coalescing to spur increased buying.”
The ability of the market to sustain gains in the absence of government incentives might mean housing has stopped weighing on growth. President Obama on Tuesday proposed a plan aimed at reducing monthly mortgage payments, which would help combat a drop in home prices that Federal Reserve policy makers say is impeding the world’s largest economy.
Central bankers said Wednesday that they’ll keep their benchmark interest rate low until at least late 2014 to help stoke the economy.
The decrease in pending sales exceeded the median forecast of 40 economists surveyed by Bloomberg News that projected a 1 percent decline. Estimates ranged from a drop of 8.1 percent to an increase of 7 percent. Sales increased 4.4 percent from December 2010.
Another report Wednesday showed home prices rose 1 percent in November from the prior month, the biggest increase in six years, according to the Federal Housing Finance Agency.
Nonetheless, values were down 1.8 percent over the past 12 months as foreclosures held back a recovery.
Among other recent housing figures, purchases of previously owned homes climbed 5 percent in December to a 4.61 million annual rate, the highest level since January 2011, the NAR reported last week.
Also in December, builders broke ground on 470,000 single-family houses at an annual rate, the most since April 2010, according to figures from the Commerce Department.
Three of four regions of the country showed a decrease in contract signings from a month earlier, led by an 11 percent slump in the West. Pending sales also fell in the Northeast and South.
The report showed an index level for pending home sales of 96.6 on a seasonally adjusted basis, down from 100.1 in November. It was the highest two months since March and April 2010. A reading of 100 is consistent with the average level of contract activity in 2001 and coincides with “historically healthy” home-buying traffic, according to the NAR.
At the end of 2009, the Obama administration extended a tax credit for first-time buyers through April 2010 and expanded it to include some current owners. The government incentive, worth as much as $8,000, helped bolster sales of previously owned homes before they dropped off in the middle of 2010, at one point touching the lowest level in at least a decade.
Economists consider pending home sales a leading indicator because they track contract signings. Existing homes sales are tabulated when a contract closes, usually a month or two later.
Faster job creation may help push more people into the market for homeownership. The economy added 200,000 jobs in December, and the unemployment rate declined to an almost three-year low of 8.5 percent, Labor Department figures showed earlier this month.
Homebuyers are also enjoying cheaper borrowing costs. The average rate of a 30-year fixed mortgage fell to a record-low 3.88 percent as of Jan. 19, according to data by Freddie Mac.
Lower rates combined with prices that have slumped for four out of the five past years are making homes increasingly affordable. The median price of a previously-owned home declined to $166,100 in 2011, the lowest annual average since $165,000 in 2002, NAR data show.
The agents group’s affordability index was at 194.5 in November, second only to the prior month’s level as the highest on record. A reading of 100 means a household earning the median income can afford a median-priced home at current lending rates.