The number of contracts signed to buy homes to February eased slightly from January, but posted another strong gain from a year ago- the latest sign that demand for homes is up from the depressed levels of the previous 18 months.
A report on Monday made by the National Association of Realtors showed the index of pending home sales, reflecting deals that have gone into contract, but haven't yet closed, rose 9.2% last month from a year earlier, continuing a rise largely fueled by investors' purchases of foreclosed properties. The index fell by 0.5% from January.
While buyers are starting to step forward, however, home builders and real-estate agents report an elevated level of contracts falling apart, as buyers run into trouble qualifying for mortgages amid tough lending standards.
Another common complaint: low appraisals that come in below negotiated value, requiring sellers to cut their price or buyers to put more money down in order to keep a deal from collapsing. As a result, the pending sales figures could be overstating actual sales as buyers sign multiple contracts over the course of several months.
Still, analysts say that housing demand appears to be stronger than at any point in the past year. Low prices are luring investors who can convert properties into rental units and make double-digit returns. More first-time buyers could face added urgency to move as landlords begin to raise rents and mortgage rates rise from record lows.
"We are seeing very strong activity out there," said Ivy Zelman, chief executive of research firm Zelman & Associates. Buyers are tired of deferring moves, and rising rents "have really pushed people off the fence," she said. "We're not ready yet to wave the victory flag and say home prices are going up, but we're confident they're stabilizing."
Monday's report showed that purchase activity was up 18.4% and 19% from a year ago in the Northeast and Midwest, respectively, after an unseasonably warm winter. Contract activity fell by 1.8% in the West.
Real-estate agents in many parts of the country say inventories of homes for sale are declining, leaving more buyers competing for less supply. Shrinking inventories could be a consequence of the decline in home prices, which has left more sellers unable or unwilling to sell their homes at a loss.
In Orange County, California, the number of homes listed for sale is down by 36% from a year ago. Meanwhile, the number of homes under contract is up 25% to its highest level in four years, according to Steven Thomas, a local housing-market analyst.
So far this year, nearly one in six homes listed for sale have gone under contract within their first three days across the 18 markets covered by Redfin Corp., a Seattle-based brokerage, said Glenn Kelman, the firms chief executive.