Higher Affordability Pushes Pending Home Sales Higher

A potent combination of plunging home prices, lower mortgage rates and higher affordability have helped to push the index of pending homes sales up 6.3% to 87.7 in December, after dropping in November by 4% to a record low of 82.5. This index was also 2.1% higher than December 2007.

The pending home sales index, released by the National Association of Realtors (NAR) is a forward looking measure that tracks the number of signed sales contracts each month.

Bank repossessions stemming from foreclosures contributed significantly to the rise in pending sales for December. Nationwide, over 29% of all home sales come in the form of repossessions and short sales, which occur when a home is sold for less than what a borrower owes on their mortgage.

The rise in pending home sales also benefited from some of the lowest mortgage rates of the year, which for a 30 year fixed-rate loan averaged 5.29% in December. This in turn has helped NAR's Housing Affordability index (HAI) rise to 158.8 in December, representing a 29% improvement over the past year. To put this into context, an HAI value of 100 would mean that a borrower would have exactly enough income to qualify for a mortgage on a median priced home, so affordability is on the rise.

Historically low home prices coupled with low mortgage rates are starting to drive sales levels upward, so there has never been a better time than now purchase a home.