Buyer Credit Drives February's 8.2% Rise in Pending Home Sales

More

More Americans signed contracts to buy homes in February, as the National Association of Realtors Pending Home Sales Index rose by an impressive 8.2%. That brings the index to 97.6, just below where it stood in December at 97.8. What's caused February's steep rise?

According to NAR, the home buyer credit's April 30th expiration is a big part of the cause. Pending home sales are forward-looking. These sales haven't actually been completed yet but signal more buyers in the market deciding to make a purchase. That's why February home sales were quite weak, but pending sales were much stronger.

So what you're likely seeing here is future demand being pulled forward by the credit, which is set to expire in November. To try to determine how much of the credit has to do with it, let's look at what happened last fall. Here's what the index looks like since December 2008:

Pending Home Sales 2010-02.PNG

As you can see, there was a steady rise until November, when it plummeted a drastic 14%. It ticked up slightly in December, but then fell again in January. The net result over that three month span was a decline of 20%. Here's a graph looking at month-over-month change:

Pending Home Sales m-o-m 2010-02.PNG

What we're seeing in February should look somewhat similar to what we saw in September, as each month was two prior to the credit's set expiration. Let's consider the two charts together. In September, home sales rose by 4.6% -- much lower than February's big 8.2% gain. That could have something to do with how much higher the index was in August than January, 103 vs. 97.6. In February home buyers had much more ground to make up after that big 20% decline from the prior 3 month period.

The difference in the details of the home buying credit could also explain February's giant increase. Prior to November, it only applied to first time buyers. The renewal, however, extended that and created a new, smaller credit for existing homeowners. So the pool of people who can now take advantage of the credit is much larger. Consequently, it makes sense that the demand it pulls forward would be even greater.

Like last fall, pending home sales will likely continue to rise in the months leading up to the credit's expiration. So expect to see big numbers again in March and April. (November's fell by so much in part because the credit was extended early in the month, so there was no longer any urgency to purchase a home for much of the month.) But if the rise is greater than it was last fall, expect to see an even deeper dive than from November through January. With both new and existing home buyers rushing to purchase through April, little demand will likely be left over for the remainder of 2010, unless the housing market's recovery is steeper than expected.

(Nav Image Credit: edkohler/flickr)

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

What Do You See When You Look in the Mirror?

In a series of candid video interviews, women talk about self-image, self-judgment, and what it means to love their bodies


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In