Housing Market Stabilization 'Undeniable': 5 Things to Know

By Luke Mullins Luke Mullins –
Wed Sep 2, 4:51 pm ET

Housing market optimists picked up another encouraging data point Tuesday, when a new report on the residential real estate market came in stronger than expected. The National Association of Realtors' pending home sales index for July was 12 percent above year-earlier levels, hitting its highest point since June 2007. "The increase reported for pending home sales was the sixth consecutive gain, suggesting firmer figures for existing home sales in the next month or two," economists at Goldman Sachs said in a report.

Here are five things you need to know about the July pending home sales report:

1. Lower prices, cheap mortgage rates: Even with the unemployment rate sitting at well above 9 percent, the nation's beleaguered housing market is handing would-be buyers some compelling reasons to get off the sidelines. "The combination of low home prices and low mortgage rates--for the creditworthy--is pulling people back into the market," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report.

2. $8,000 tax credit: The $8,000 first-time home buyer tax credit--which the Obama administration included in its massive stimulus package--has also helped. "NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year," the trade group said in its press release. "With approximately 350,000 additional sales that would not have taken place without the credit."

3. Looming expiration: To qualify for the credit, however, home buyers must make their purchase before Dec. 1, 2009. "[Buyers] must complete the transaction by November 30 to qualify for the credit," NAR said. "Contracts signed but not completed by that date will not be eligible--it is taking approximately two months to complete home sales in the current market."

Charles McMillan, the president of NAR and a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, wants lawmakers to extend the benefit. "We're encouraging Congress to extend the tax credit into 2010, and to expand it to all buyers of primary residences," McMillan said in NAR's press release. But if Congress doesn't move to do so, the expiration of the tax credit could certainly "take some of the wind out of the market's sails this fall," says Mike Larson of Weiss Research.

4. Additional supply? Despite the optimistic housing data, real estate prices could face continued downward pressure from additional inventory. "The influx of distressed property into the market promises to keep supply levels elevated over the next 12 to 18 months," Larson says. Shepherdson, meanwhile, cautioned that homeowners may take this opportunity to dump more properties onto the market. "Beware a rise in supply as frustrated would-be sellers see their chance," he said.

5. 'Undeniable' stabilization: Nevertheless, Larson says the most recent pending home sales report represents further evidence that the housing market is on the mend. "The overall trend toward stabilization is undeniable at this point," he says.