Despite brighter outlook, activity still lags last year

Wednesday, August 01, 2007

Inman News

A forward-looking indicator based on pending sales of existing homes suggests the market may stabilize in the months ahead, the National Association of Realtors reported today.

Although the Pending Home Sales Index, based on contracts signed in June, was still 8.6 percent lower than a year ago, it rose 5 percent to 102.4 from the downwardly revised May index of 97.5. This is the largest monthly gain in more than three years, since a 6.1 percent increase in March 2004, according to NAR. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

Between May and June, the index in the West increased 8.6 percent to 103.6; in the Northeast, it was up 3.1 percent to 96; in the South, it increased 4.7 percent to 111.6; and in the Midwest, the index gained 3.5 percent to 92.5.

Lawrence Yun, NAR senior economist, said it is encouraging that the increase occurred in all four major regions. "However, it is too early to say if home sales have already passed bottom," he said. "Still, major declines in home sales are likely to have occurred already and further declines, if any, are likely to be modest given the accumulating pent-up demand."

Despite the month-over-month gains, the indexes in all four regions were still lower than the same time last year, with the West 5.5 percent lower than June 2006, the Northeast down 2.4 percent, the South off 12.7 percent, and the Midwest lower by 8.2 percent.

The index is a leading indicator for the housing sector, 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, though the sale usually is finalized within one or two months of signing.

Annual changes in the index are more closely related to actual market performance than are month-to-month comparisons. As the relatively new index matures and seasonal adjustment factors are refined, the month-to-month comparisons will become more meaningful.