This morning the National Association of Realtors released its Pending Home Sales Index. The index was up slightly, increasing 5.2 percent for the month of July, but still nearly 20 percent below the level it was at in July 2009 (and if you recall, homes were not exactly flying of the shelf back then, either).
Let’s take a look at the quotes in the release from Lawrence Yun, NAR’s chief economist:
Lawrence Yun, NAR chief economist, cautioned that there would be a long recovery process. “Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,” he said. “But the recovery looks to be a long process. Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers. For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”
Yun added, “Affordability could reach a generational high in the second half of this year because of rock-bottom mortgage interest rates, helped partly by the Fed’s very accommodative monetary policy. The loan underwriting standards are tighter, but home buyers can improve their chances of getting a loan by staying well within their budget.”
I don’t take issue with much of what Yun is saying here. The recovery is going to take a long time, and many people will not recoup the money they put into their homes for many years (analysts predict home values in the sand states will not get back to peak levels until 2025).
I do have an issue with the statement about affordability. While prices are down significantly from their peak in 2006-7, they are still high compared to income on a historical basis, which is really what we should be looking at. It is likely that home prices still have further fall, with many analysts predicting somewhere between 5 and 20 percent based upon locality. I believe the idea that affordability is at a generational high is incorrect, unless you define a “generation” as the last seven-ten years or so. It’s also worth noting that the NAR has a record of somewhat dubious predictions when it comes to housing, as can be noted here, here, here, and here.
As always, you need to take these types of metrics with a grain of salt, and make purchase decisions that best fit your present needs and personal situation at this moment.
Homeowners also typically have no regrets about buying their home despite the increasing number of foreclosures and drop in housing values. Only 9 percent of homeowners in the poll said they regret buying their current home, compared to 90 percent who had no regrets.
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