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Economy in Brief

Falling Rates & Prices Push Affordability to New High
by Tom Moeller March 3, 2009

The National Association of Realtors indicated that pending sales of existing homes fell 7.7% in January to a record low. The decline left sales 7.4% below the 2008 average and it was roughly twice the Consensus expectation.

The home sales figures are analogous to the new home sales data from the Commerce Department in that they measure existing home sales when the sales contract is signed, not at the time the sale is closed. The series dates back to 2001.

Lower prices continued to bolster home sales. The median sales price of an existing home fell in January for the seventh straight month and was down 14.8% year-to-year. Prices were down 25.7% from their peak during June 2007. For single-family homes alone, prices fell 2.9% during January and they were off 25.9% from their peak. Lower prices combined with lower interest rates significantly raised the affordability index of a home by 24.9% year-to-year. The latest level was a record high for the series which extends back to 1970.

Weak home sales are encouraging potential sellers to keep their homes off the market. The Realtors Association indicated in an earlier report that the number of homes on the market and available for sale fell by 13.5% last month versus January of last year.

At the current sales rate there was a 9.6 months' supply of homes on the market and there was a 10.4 months' supply during all of last year, up from the 8.9 months supply during 2007 and 6.5 months during 2006. For single family homes, there was a 9.2 months' supply in January versus a full-year figure of 10.0 months.

The pending home sales data are available in Haver's PREALTOR database. The number of homes on the market and prices are in the REALTOR database.

Current economic and financial conditions and the federal budget is today's testimony by Fed Chairman Ben S. Bernanke and it is available here.

Pending Home Sales (2001=100)  January December Y/Y 2008 2007 2006 
Total 80.4 87.1    -6.4% 86.8 95.8 112.1 
  Northeast 57.8 66.2 -19.7 72.6 85.6 98.5
  Midwest 72.6 80.0 -13.8 80.6 89.5 102.0
  South 82.2 93.3 -9.1 89.8 107.3 127.3
  West 103.6 101.1 13.5 99.3 92.1 109.5
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