U.S. pending home sales see biggest gain in 7 years

Last week we saw an increase in the transaction volume, and today we read about pending contracts being up. So is the drop over?

We're not sure if the recovery has begun, but we do know this. Homes are becoming more affordable once again for the first time home buyer. When we say affordable, we mean organically affordable. What is the difference?

Let's take the year 2005, home affordability was practically for everyone. It really didn't matter if someone had good income to debt ratios or any reserves in the bank. Credit was flowing and one could leverage the purchase of a house with practically no money down. So a household with 80K income could buy a $600K home.

Today, one must actually have income that can support a mortgage. Highly leveraged homes are a thing of the past. The same household of 80K can now purchase a home of around $240K. With the drop in home prices, people can actually afford their home once again.

Naturally, what follows now is that once the demand for these homes reaches a critical mass, it will drive up prices for the middle tier priced homes.

So are we at the bottom? Not sure, but we have some positive signs. In the age of instant gratification it is easy to dismiss this as a positive sign as it may take some time to fully recover. However, if one is selling real estate as a profession, they may want to start marketing homes in this lower tiered group. That is where the action will be for the rest of 2009.

http://www.reuters.com/article/newsOne/idUSN2754905920090602