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US: Affordability boost or false dawn?

Jaimie Kanwar

After months of gloom, there seems to be some positive news coming out of the USA...

According to a new report from the National Association of Realtors (NAR), lower prices seem to making real estate more affordable. The apparent proof of this is the fact that more Americans signed contracts to buy existing homes in April, led by unexpected gains in the Midwest and West. The NAR indicated that the Pending Home Resales Index rose 6.3% to 88.2, the highest level in six months, following a 1% drop in March,

Lawrence Yun, chief economist of the NAR, commented” "Bargain hunters entered the market en masse, especially in areas that have experienced double-digit price declines, but it's unclear if they are investors or owner occupants.

“The drop in property values may be starting to lure some buyers who are able to qualify for loans, signalling purchases will improve in 2009. Still, stricter lending rules, the recent increase in mortgage rates and continued pressure on prices from mounting foreclosures will probably keep some buyers away for much of the year”.

The pending resales measure is considered a leading indicator because it tracks contract signings. The existing-home sales report reflects closings, which typically occur a month or two later.