Pending home sales rebound in October's NAR index
Pending home sales rose in October, showing a positive trend upward after bottoming in June, the National Association of Realtors said. While the surge in pending sales is good news, economist Paul Dales of Capital Economists said "it doesn't alter our view that a weak housing rebound will continue to hold the wider economic recovery back." NAR’s Pending Homes Sales Index, a forward-looking indicator, rose 10.4% to 89.3 based on contracts signed in October from 80.9 in September. The index remains 20.5% below its cyclical peak of 112.4 in October 2009, which was the highest level since May 2006 when it hit 112.6. The index is based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed. An index of 100 is equal to the average level of contract activity during 2001, which was the first year examined as well as the first of five consecutive record years for existing-home sales. Last October, first-time buyers were motivated to make offers before the initial contract deadline for the homebuyer tax credit in November 2009. Lawrence Yun, NAR chief economist, said housing affordability is drawing buyers. “It is welcoming to see a solid double-digit percentage gain, but activity needs to improve further to reach healthy, sustainable levels. The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011,” he said. “A return to more normal loan underwriting standards and removal of unnecessary underwriting fees for very low-risk borrowers” would help the recovery, Yun said. The PHSI in the Northeast jumped 19.6% to 71.3 in October but is 27.3% below the tax credit peak in October 2009. In the Midwest the index surged 27.3% in October to 81.7 but is 24.8% below a year ago. Pending home sales in the South rose 7.1% to an index of 93.8 but are 18.4% below October 2009. In the West the index slipped 0.4% to 104.3 and is 15.6% below a year ago. Near term, Yun expects home sales will continue to climb from their cyclical low this past summer, but concerns over the mortgage interest deduction could put a crimp in the market. Dales said the index seems to indicate that the impact of the foreclosure crisis was more modest than anecdotal reports suggested and was offset by households taking advantage of low mortgage rates. "Given that it usually takes around a month for contract signings to turn into closings, the index suggests that existing home sales may rise from 4.43 million in October to just under 5 million in November. The freezing of foreclosure activity may still mean that some of those contracts fall through," Dales said. "Nonetheless, it seems as though existing home sales will more than reverse October's decline and continue along the previous upward trend. High unemployment, tight credit conditions and widespread negative equity, however, mean that upward trend will be gradual." Write to Kerry Curry.