Stephanie Armour
USA Today
Home buyers rushed to purchase previously owned homes in February, a shift hailed as the long-awaited start of the spring housing market.
The seasonally adjusted index of sales agreements jumped 8.2% in February to 97.6 from 90.2 in January, the National Association of Realtors (NAR) said.
Although many economists had expected a decline, it turned out to be the second biggest monthly rise on record behind October 2001.
After an anemic winter, home sales are now likely to continue showing steady increases, economists say, as buyers rush to complete purchases before a tax credit of up to $8,000 for first-time home buyers expires April 30. They cite other factors, including more jobs and economic growth, that could continue to propel a housing recovery.
“What we’re starting to see are people who have their eye on the tax credit make some moves,” says Joel Naroff at Naroff Economic Advisors. He predicts home sales will continue growing: “Job growth, the economy is coming back; Realtors are listing — everything seems to be working in the positive side of the cycle.”
Pending sales rose the most in the Midwest, at 21.8% in February from January. In the West, the index fell 4.8% in February. The Northeast rose 9%, and pending home sales in the South increased 9.2%. The data reflect contracts. Closings usually occur one or two months later.
Cheap home prices could also be drawing bargain-hunting buyers. Home prices in January fell 0.4% from December on an unadjusted basis, according to a report last week from the Standard & Poor’s/Case-Shiller index.
Anecdotal reports suggest March may also show gains in home sales, says Lawrence Yun, chief economist at NAR. That would be critical in helping reduce the overall amount of housing inventory. High levels of inventory dampen prices by reducing competition for homes.
Yun says that there may be some decrease in home sales in June through August, after the tax credit expires, and that higher interest rates near the end of the year could depress sales. Currently, the average interest rate on a 30-year, fixed mortgage is 5.08%, Freddie Mac says. “I’m optimistic,” Yun says. “By year end, interest rates could be closer to 6%. But with the improving economy and buyer confidence, that shouldn’t be a hindrance.”
The first-time home buyer tax credit applies to homes purchased on or before April 30 and is equal to 10% of the home’s purchase price up to a maximum of $8,000. Congress also approved a credit for move-up home buyers up to a maximum of $6,500. The credits apply only to homes priced at $800,000 or less.