According to the Pending Home Sales Index issued by the National Association of Realtors, pending home sales climbed 9.2 percent higher than in February 2011.
Lawrence Yun, NAR chief economist, said we are seeing the continuation of an uneven but higher sales pattern. “The spring home buying season looks bright because of an elevated level of contract offers so far this year,” he said. “If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7 to 10 percent in 2012.”1
Mortgage rates dropped for the week ending March 30, 2012, as the latest economic data disappointed investors and the Fed reminded them that the economy is far from recovery.
The benchmark 30-year fixed-rate mortgage fell to 4.23 percent, compared to 4.29 percent the previous week, according to the Bankrate.com national survey of large lenders.2
Do lower mortgage rates directly affect the Pending Home Sales Index? There may not be a direct correlation between the two. Tighter lending requirements have not eased and qualified “would be” buyers are still being rejected by traditional lenders. So that begs the question, what is driving the upward trend?
Many sales are to cash buyers who are buying property for cash flow. These investors are realizing a much better return for their money with rentals versus the near zero percent yields offered by banks.
Still other buyers are buying using a Lease-Option to move into their new home. These agreements offer a buyer an opportunity to move into a home in spite of being turned down by traditional lenders but do require the seller to accept the terms of the option contract. It is a win-win situation. Seller sells their property; buyer is able to move into a home sooner than later.
The final and perhaps most significant way that it appears properties are being sold recently, is through Seller Financing. In this situation the seller essentially becomes the lender. Typically the seller accepts a down payment at closing and receives monthly payments until the home is paid in full sometime in the future. The terms of the “Note” and the manner in which it is created will determine the value and security of the note.
The Pending Home Sales Index’s upward trend is being driven by multiple factors. In light of today’s real estate market and current lending regulations and requirements, these should be explored more thoroughly by both sellers and buyers. Both sellers and buyers should seek advice from an attorney or consult with an expert before proceeding with any real estate transaction.
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Source(s):
1. Pending Home Sales Ease in February but Solidly Higher Than a Year Ago, March 26, 2012, National Association of Realtors, Retrieved April 2, 2012.
2. Mortgages sink on anemic recovery, Polyana da Costa, April 2, 2012, Bankrate.com, Retrieved April 2, 2012.
