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REALTOR®: Home Buyers Expected to Respond with Improved Affordability Conditions and Other Incentives

Wednesday, March 11, 2009

Pending home sales declined as some buyers continue to wait for clarity on housing stimulus provisions, but REALTOR® officials believe buyers will ultimately respond as homes become more affordable and they have a clearer understanding of financial incentives in today's market.

The National Association of REALTORS® reported this month that the Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, fell 7.7 percent to 80.4 from a reading of 87.1 in December, and is 6.4 percent below January 2008. The index is at the lowest level since tracking began in 2001, when the index value was set at 100.

Lawrence Yun, NAR chief economist, said the downturn in the economy also weighed heavily on the data. "Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales," he said. "We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit."

The PHSI in the Northeast dropped 12.7 percent to 57.8 in January and is 19.7 percent below a year ago. In the Midwest, the index declined 9.2 percent to 72.6 and is 13.8 percent below January 2008. The index in the South fell 11.9 percent to 82.2 in January and is 9.1 percent below a year ago. In the West, the index rose 2.4 percent to 103.6 and is 13.5 percent higher than January 2008.

"Housing affordability has improved significantly, even here in Silicon Valley," said Julia Truesdale Keady, president of the Silicon Valley Association of REALTORS® (SILVAR). In Santa Clara County affordability increased to 49 percent during the fourth quarter of 2008, from 24 percent the previous year. The minimum household income needed to purchase an entry-level home at $446,250 in California in the fourth quarter of 2008 was $87,900, based on an adjustable interest rate of 6.02 percent and assuming a 10 percent down payment. The monthly payment including taxes and insurance was $2,930 for the fourth quarter of 2008.

"Conditions are favorable for serious buyers who are considering purchasing a home for the long-term and have good credit. Interest rates are still very low and first-time homebuyers can still avail of the $8,000 tax credit until December 1, 2009," said Keady, who is a REALTOR® with Alain Pinel Realtors in Palo Alto. "REALTORS® should inform their clients about this and other incentives that make conditions today a buyer's market."

Affordability has improved nationally. "With the drop in interest rates, a median-income family can afford a home costing $20,000 more than a year ago for the same monthly mortgage payment," said NAR President Charles McMillan. "With the strong housing stimulus, we are hopeful inventory will get trimmed and which will help prices stabilize in many areas by the end of this year."

NAR's Housing Affordability Index rose 13.6 percentage points in January to 166.8, a new record high. The HAI, a broad index of affordability using consistent values and assumptions over time, shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970.

The HAI indicates a median-income family, earning $59,800, could afford a home costing $283,400 in January with a 20 percent down payment, assuming 25 percent of gross income is devoted to mortgage principal and interest; affordability conditions for first-time buyers with the same income and small down payments are roughly 80 percent of that amount. A year ago, the typical family could afford a home costing $263,300.

Yun remains optimistic. "Conditions have been aligning very favorably for home buyers with the exception of consumer confidence. But I am hopeful that sales will turn around by late spring and early summer because history suggests that home sales can rise even in times of job losses when housing affordability rises," he said.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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