Pending Home Sales Show Modest Increase

By:: Kara Johnson | September 02, 2010

Pending home sales rose modestly in July, two months after taking a steep plunge that put the housing market into the doldrums.

Signed contracts for home sales rose 5.2 percent in July, the National Association of Realtors (NAR) reported today, the first sign that the housing market is recovering from the end of the homebuyer tax credit. Pending sales plunged nearly 30 percent in May and another 2.8 percent in June after the credit expired.

The report was a spark of good news for the battered housing market. Analysts had expected a decline of 1-2 percent.

Pending sales are considered a leading indicator, preceding actual sales – meaning closings – by one to two months, and the unexpected boost suggests the hangover from the end of the tax credit may be less severe than expected.

Home sales were brisk in the early months of the year, and most analysts believe the tax credit spurred many buyers to act sooner than they might have otherwise. As a result, the pool of potential buyers was depleted when the credit expired, and sales plummeted.

Edward Yun, NAR chief economist, said homes sales will probably remain soft for some time to come, despite record low mortgage interest rates and prices that are making buying a home increasingly affordable for young purchasers.

“The recovery looks to be a long process,” Yun said. “Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers. For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”

On a regional basis, pending sales showed their strongest gains in the West, increasing 11.6 for the month. The South showed the weakest gains of only 1.2 percent. Overall, pending sales were down over 19 percent from their July 2009 level on a national basis.

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