Pending Home Sales Rebound

MBA (8/8/2008 ) Velz, Orawin
The number of potential homebuyers signing contracts to buy previously owned homes picked up strongly in June. The National Association of Realtors Pending Home Sales Index was up 5.3 percent to 89.0 from 84.5 in May, more than offsetting the 4.9 percent drop in May. However, the index was down 12.3 percent from last June.
Pending home sales increased in every region of the country: 9.3 percent in the South; 4.6 percent in the West; 3.4 percent in the Northeast; and 1.3 percent in the Midwest. However, compared with a year ago, every region posted declines. The West saw a modest year-over-year decline of 1.7 percent in June following two consecutive year-over-year increases in sales.

The relatively stronger performance of existing home sales for the region partly reflects rising shares of foreclosed and distressed homes that were sold through the Multiple Listing Service. Attractive bargain prices have helped lure some buyers back into some local markets.

The index is based on signed contracts for existing single-family homes, condos and co-ops. It is a leading indicator of NAR’s existing home sales, which are based on closings, as the signed contract for the purchase of a home generally precedes its closing by one to two months. Following the 4.9 percent drop in the pending home sales index in May, reaching the second lowest reading in the index on record, total existing home sales fell 2.6 percent in June. The increase in June pending home sales suggests that existing home sales should rebound moderately in the near term. NAR will release existing home sales figure for July on August 25.

Other leading indicators of home sales have not pointed a considerable improvement in the housing market in the coming months. The Mortgage Bankers Association’s weekly survey of mortgage applications showed that purchase applications dropped modestly in June and July as mortgage rates trended up. The segment of the purchase market that has been doing consistently well is the government (largely FHA) market, which continued to see steady increases in purchase mortgage applications.

The outlook for the new home markets, which have not been helped by distressed home sales, remains subdued: the National Association of Home Builders/Wells Fargo Housing Market Index, a measure of home builders’ confidence, fell to a record low in July. All three components of the index representing current single-family home sales, six-month expectations of home sales, and prospective buyer traffic declined during the month.