Sales of existing homes rose much more than expected in December, an industry trade group said on Tuesday, as vulture and distressed property buyers took advantage of the nationwide drop in home prices.
However, a housing affordability indicator did rise to a record high during the month - a positive sign that the home buying may become attractive in the coming months.
According to the National Association of Realtors, the December pending home sales index rose 6.3% to a reading of 87.7 up from a reading of 82.5 in November.
The home sales increase was much more than the expectations of flat home sales economists were expecting, according to data provided by Thomson Reuters. However new home sales activity, which is the smaller of the two segments of the housing market tracked by the market, fell to a record low during the same month.
“The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month,” said Lawrence Yun, chief economist for the industry trade group.
Pending home sales are defined by the National Association of Realtors as contracts signed, not purchases that are financed and completed. With the credit crunch and financing being mostly unavailable, a fairly large percentage contracts signed may not turn into completed purchases.
The increase in purchasing activity happened primarily in the less distressed areas of the country -- the South and the Midwest – where home sales increased nearly 13% in each of those regions compared to a month ago. In the West, where home prices have fallen the most nationwide, home sales activity was down 3.7% from the month before.
One of the bright spot in the NAR report is that the trade organization's "housing affordability index" rose to a record high during the month of December. According to NAR, the combination of falling mortgage rates and lower prices pushed the affordability index up 10.9% in December to a reading of 158.8.
Areading of 158.8 roughly translates into the fact that the average American family now makes about 158.8% of the income needed to afford to purchase a house.
Tony Crescenzi, Chief Bond Market Strategist at Miller Tabak, pointed out that NAR's housing affordability index hit a 20-year low of 102.70 in June 2006, near the peak of the housing market bubble.
"For people willing to accept the high probability of immediate capital loss, the recent drop in mortgage rates has certainly improved affordability substantially," added Ian Shepherdson with High Frequency Economics.
In other news related to the housing market, the U.S. Census Bureau said a record 19 million homes were empty by the end of 2008.
According to the Bureau, the U.S. vacancy rate which is the share of empty homes for sale rose to 2.9% in the last quarter. That is the highest percentage of empty homes since the Census began tracking the data in 1956.
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