Contract signings up in January as housing market recovers

Pending home sales hit their highest level in nearly two years in January, providing further evidence that the housing market is gradually recovering. 

Contract signings, a forward-looking indicator of where the housing market is headed, were up 2 percent last month to 97, the highest level since April 2010, from a downwardly revised 95.1 in December, the National Association of Realtors said Monday.

"Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year," said Lawrence Yun, NAR chief economist. 

"With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations," he said. 

A reading of 100 is considered healthy — the April 2010 reading was 111.3 as buyers rushed to take advantage of the home-buyer tax credit.

Sales are final until closing, and real estate agents have expressed frustration over contract cancellations in recent months. 

Low mortgage rates are making housing more affordable but the housing sector is still being held back by a glut of distressed houses on the market that are holding prices down, along with tighter lending standards and continued high unemployment. 

At the same time, unemployment has been gradually dropping since the summer — although at 8.3 percent it is still high — and sales of existing homes have hit their highest level since May 2010, housing supply is shrinking back to healthier levels, dropping to a seven-year low last month, all making builders more optimistic about the future of the housing market this year and into 2013.

“Movements in the index have been uneven, reflecting the headwinds of tight credit, but job gains, high affordability and rising rents are hopefully pushing the market into what appears to be a sustained housing recovery," Yun said. 

“If and when credit availability conditions return to normal, home sales will likely get a 15 percent boost, speed up the home-price recovery, and thereby significantly reduce the number of homeowners who are underwater."

Contract signings increased in two of four regions in January — they were up 7.6 percent to 78.2 in the Northeast and 7.7 percent to 109.1 in the South.

The index dropped 3.8 percent to 88.1 in the Midwest and fell 4.4 percent to 101.9 in the West.