Pending home sales climbed 6.7 per cent in April, which is the highest single monthly jump in about eight years. Pending sales are deals made by a buyer to close on a previously owned home.

Many analysts have begun to speculate the levels of home sales could reach those last seen at the start of the stock market sell-off last year. While pending sales are often seen as a good barometer of the real estate market, many are still concerned that a full recover in housing could be a ways off.

Foreclosures are still relatively high based in large part on growing unemployment and continued layoffs. Most economists believe that while home sales appear to have stabilized, home prices are probably going to keep falling even farther than already historic low levels. Simply put, there aren’t enough dollars or credit available to potential buyers to help drive prices higher.

Why have pending sales picked up? In part, it is because home prices are at such low price points that some people have found deals hard to pass up. Despite a rise from 5 per cent to about 5.3, according to bankrate.com, the national average 30-year fixed mortgage rate is still extremely low. Low home prices and low mortgage rates create a very valuable opportunity for buyers.

Perhaps the most credit for the more recent spike goes to an $8,000 first-time home buyer tax credit that President Obama included in his February economic stimulus plan. Combined with the aforementioned discounts on homes and loans, this makes for never-before-seen opportunities for new entrants into the housing arena.

The housing market has been in a slump that is now running on three years. Stability in home sales is a good initial sign that conditions might have reached their worst. But, the 15 per cent price decline in April from the same month last year brought the average home sale price to $170,200. According to the National Association of Realtors, this is the second greatest yearly price decline on record.

It may sound contradictory that gains in pending home sales levels would not bring a correlating rise in prices. After all, basic supply and demand economics suggest if demand has increased that dramatically, prices should climb. The problem for price levels is more on the supply side. There are still plenty of foreclosed and distressed properties flooding markets across the country with surplus inventory. Many of these properties are selling at much lower price points than they would have just last year, or even a few months ago, in some cases.

Obviously, there are still some obstacles in the way of a return to consistently prosperous housing. However, most Americans would likely agree that prospects are more positive now than they have been for a while. If unemployment does peak in early 2010, as has been commonly suggested, home values could begin to rise mid-to-late next year.

Neil Kokemuller
10:37 PM EST
Tuesday, June 2, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

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