Pending home sales increase over 10 percent in October; Mortgage Interest Deduction vital to Recovery

Dennis Norman

The National Association of REALTORS Pending Home Sales Index for October shows an increase of 10.4 percent in the index from the month before (seasonally adjusted), and a 20.5 percent decrease from a year ago.

Here are highlights from the report:

  • October’s pending home sales index (seasonally adjusted) was 89.3 (the index is based upon 100.0 being equal to the average level of sales activity in 2001 which we could call the last “normal” year) which is a 10.4 percent increase from the month before and a 20.5 percent decrease from a year ago.
  • October’s not-seasonally adjusted index index was 84.2, a 9.2 percent increase from the month before and a 22.4 percent decrease from a year ago.
  • All regions in the U.S., except the West, saw month-over-month increases however all the regions had year-over-year declines in pending home sales.

Lawrence Yun, NAR chief economist,

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.

Mortgage Underwriting Standards Need to Return to Normal…

“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.

Congress could mess it up by messing with mortgage interest deduction…..

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 percent 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.”

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