WASHINGTON (December 2, 2010) — Pending home sales jumped in October, showing a positive uptrend since bottoming in June, according to the National Association of REALTORS®.

The Pending Home Sales Index, a forward-looking indicator, rose 10.4% based on contracts signed in October. The index remains 20.5% below a surge to a cyclical peak in October 2009, which was the highest level since May 2006.

Last October, first-time home buyers were motivated to make offers before the initial contract deadline for the tax credit last November. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

NAR Chief Economist Lawrence Yun said excellent housing affordability conditions are drawing home buyers. “It is welcoming to see a solid double-digit percentage gain, but activity needs to improve further to reach healthy, sustainable levels. The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011,” he said.

“More importantly, a return to more normal loan underwriting standards and removal of unnecessary underwriting fees for very low-risk borrowers is needed and could quickly help in the housing and economic recovery,” Yun said. Recent loan performance data from Fannie Mae and Freddie Mac clearly demonstrates very low default rates on recently originated mortgages, much lower that the vintages of 2002 and 2003 before the housing boom.

Most regions post jumps in home sales

The PHSI in the Northeast jumped 19.6% in October but is 27.3% below the tax credit peak in October 2009. In the Midwest the index surged 27.3% in October but is 24.8% below a year ago. Pending home sales in the South rose 7.1% but are 18.4% below October 2009. In the West the index slipped 0.4% and is 15.6% below a year ago.

Mortgage interest deduction needed

Near term, Yun expects home sales will continue to climb from their cyclical low this past summer. “Even so, we now have some consumer concerns regarding the mortgage interest deduction, an important component in housing affordability,” he said. “Preliminary results of a new survey show nearly three out of four home owners and two out of three renters consider the mortgage interest deduction to be extremely or very important to them. Home owners already pay between 80% and 90% of all federal income taxes and additional tax burden would hurt them and the economic recovery, so we have a reasonable hope that it will not be changed.”

Source: NAR