After Two Strong Months Pending Home Sales Fall 1.3% in July

After posting two strong consecutive months, pending home sales fell in Julyrnaccording to information released Monday by the National Association ofrnRealtors® (NAR).  The Pending Home SalesrnIndex (PHDI), a forward-looking indicator of housing market health, registeredrn89.7 in July, down 1.3 percent from the 90.9 reported in June.  The July decline was small but disappointingrnas it follows a 2.4 percent increase in June and an 8.2 percent jump in May. Despiternthe weak July results the Index remains 14.4 percent higher than it was onernyear earlier when the NAR reported it at 78.4.</p

The PSHI is based on sales of existing homes where a contract has beenrnsigned but the transaction has not closed, though the sale usually is finalizedrnwithin one or two months of signing.  Anrnindex of 100 is equal to the average level of contract activity during 2001,rnwhich was the first year to be examined. rn</p

Lawrence Yun, NAR chief economist, said sales activity is underperforming.rn”The market can easily move into a healthy expansion if mortgage underwritingrnstandards return to normalcy,” he said. “We also need to be mindful that notrnall sales contracts are leading to closed existing-home sales. Other marketrnfrictions need to be addressed, such as assuring that proper comparables arernused in appraisal valuations, and streamlining the short sales process.”</p

All regions show decreases except for the West, which continues to show thernhighest level of sales contract activity. rnIn that region the index was 110.8, 3.6 percent above June and 20.6rnpercent higher than last year.  Pendingrnsales in the Northeast declined to 67.5 percent, down 2.0 from June but 9.7rnpercent higher than one year earlier. rnMidwest figures were down 0.8 percent to 79.1, 18.8 percent higher thanrnJuly 2010 and in the South the index was 94.4, a drop of 4.8 percent from Junernbut 9.5 percent above the comparable 2010 figure.</p

 “Looking at pending home sales over arnlonger span, contract activity over the past three months is fairly comparablernto the first three months of the year, and well above the low seen in April,”rnYun said. “The underlying factors for improving sales are developing, such asrnrising rents, record high affordability conditions and investors buying realrnestate as a future inflation hedge. It is now a question of lending standardsrnand consumers having the necessary confidence to enter the market.”</p

The index is based on a large national sample, typically representing aboutrn20 percent of transactions for existing-home sales. In developing the model forrnthe index, it was demonstrated that the level of monthly sales-contract activityrnparallels the level of closed existing-home sales in the following two months.

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