Pending Home Sales Dropped Again

Pending sales dropped 6.5% to a record low in August, according to the National Association of Realtors. The drop was larger than forecast, and reflects stricter lending practices, higher borrowing costs, and low mortgage availability, especially for the so-called jumbo loans or loans for more than $417,000 which are not guaranteed by Government-chartered enterprises Fannie Mae and Freddie Mac. Pending home sales were down 22% year-over-year.

Pending sales are an indicator of future activity, so the August results could mean that September and October home sales will be lower as well. Although banks are seeing signs of improvement in credit markets, problems in the housing sector are far from over, which may prompt the Fed to cut interest rates again before the end of this year. The next Fed meeting is at the end of October.

Pending home sales dropped in May

Data released by the National Association of Realtors (NAR) points that pending sales of existing homes dropped to the lowest level in 6 years in May. The index declined 3.5% to a reading of 97.7, following declines in the previous two months. A year ago, it stood at 112.7. A reading of 100 represents the average contract activity in 2001.

Pending sales are purchases in which the contract has been signed, but the deal has not been closed yet. Thus, the index is considered a near-term indicator of future market activity, and consecutive monthly declines could only mean that home buying isn’t picking up any time soon. The index declined in the South and Midwest, and grew in the West and Northeast.

NAR’s senior economist Lawrence Yun said that “some transactions are being postponed” due to market disruptions. He didn’t mention, however, how long he expects buyers to keep “postponing” purchases.

Pending Home Sales Index drops

The National Association of Realtors (NAR) announced that its Pending Home Sales Index dropped 3.2% in April from a month earlier. The index measures home purchases in which the contract has been signed but the transaction is not yet closed. It is considered a forward-looking indicator of market activity. In both March and April, the pending home index was approximately 10% lower than last year’s readings.

This drop is somewhat unexpected, because forecasts predicted a 0.4% increase. Lawrence Yun, a senior economist with the NAR, said sales of existing homes “might ease but should be fairly stable in the months ahead”. Hm… The index was in fact much lower than expected, is that a sign of improvement? Not in the real world, I think. According to some predictions, it may take several years for the housing market to stabilize, so expecting a “quick rebound” in the coming months is somewhat unrealistic. A rosy picture from the NAR again? Perhaps…