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RISMEDIA, August 5, 2009-Pending home sales are up for the fifth consecutive month, the first time in six years for such a streak, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in June, rose 3.6% to 94.6 from an upwardly revised reading of 91.3 in May, and is 6.7% above June 2008 when it was 88.7. The last time there were five consecutive monthly gains was in July 2003.

Lawrence Yun, NAR chief economist, said a combination of positive market factors is fueling the gains. “Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines. Activity has been consistently much stronger for lower priced homes,” he said. ”Because it may take as long as two months to close on a home after signing a contract, first-time buyers must act fairly soon to take advantage of the $8,000 tax credit because they must close on the sale by November 30.”

The Pending Home Sales Index in the Northeast rose 0.4% to 81.2 in June and is 5.8% above a year ago. In the Midwest the index increased 0.8% to 89.9 and is 11.6% above June 2008. The index in the South jumped 7.1% to 100.7 in June and is 8.9% higher than a year ago. In the West the index rose 2.9% to 100.4 but is 0.2% below June 2008.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, is hopeful that a recently elevated level of contract cancellations will ease. “Last month, Freddie Mac and Fannie Mae clarified that appraisals should be done by professionals with clear local expertise,” he said. “This should mitigate the situation of many valuations done by out-of-area appraisers coming in below the price negotiated between buyers and sellers. Hopefully, in the months ahead, we’ll see an even closer relationship between contract activity and closed transactions.” McMillan said NAR is continuing to press the appraisal issue. “We have asked Congress and the Federal Housing Finance Agency to immediately implement an 18-month moratorium on the new appraisal rules to further address unintended consequences of the new guidelines,” he said.

NAR’s Housing Affordability Index (HAI) remains very favorable. The affordability index stood at 159.2 in July, down from record peaks in recent months but it remains 36.6 percentage points above a year ago. Under these conditions the typical family would devote 15.7% of gross income to mortgage principal and interest, well below the standard allowance of 25%. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.

“A monthly rise in home prices and somewhat higher mortgage interest rates led to a modest decline in affordability in June, but it was still the sixth highest index on record dating back to 1970,” Yun said. “Because housing is so affordable in today’s market, job security and the first-time buyer tax credit are bigger factors in influencing home sales.”

A median-income family, earning $60,700, could afford a home costing $289,100 in June with a 20% downpayment, assuming 25% of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small downpayments are roughly 80% of what a median-income family can afford. The affordable price was much higher than the median existing single-family home price in June, which was $181,600.

Yun expects existing-home sales to gradually rise over the balance of the year, with conditions varying around the country. “It appears home sales are on a sounder footing and inventory is gradually being absorbed.”

A study of the Massachusetts housing market by researchers from Northwestern University and the University of Chicago concludes that a home owner’s propensity to default increases the further their loan goes under water.

The study found that home owners begin to walk away after declines of 15 percent or more. More than 17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent of the value of the house.

The researchers found:

• People under the age of 35 and over the age of 65 are less likely to say it is morally wrong to default compared to middle-aged respondents.
• People with a higher education (8 percentage points) and African-Americans (14 percentage points) are less likely to think it is morally wrong to default, whereas respondents with a higher income are more likely to think it is morally wrong.
• Default is considered less morally wrong in the Northeast (6 percentage points) and West (8 1/2 percentage points).
• There was little difference in the moral view of strategic default among Republicans and Democrats, but independents are less likely to say defaulting is immoral.
• Respondents who supported government intervention to help homeowners were 12 percentage points less likely to say strategic default is immoral.

“As defaults become more common, the social stigma attached with defaulting will likely be reduced, especially if there continues to be few repercussions for people who walk away from their loans,” says Paola Sapienza, associate professor of Finance at the Kellogg School of Management at Northwestern University.

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