Pending Home Sales Pick Up Strongly

MBA (6/10/2008 ) Velz, Orawin
The number of potential homebuyers signing contracts to buy previously owned homes increased in April. The National Association of Realtors’ Pending Home Sales Index rose 6.3 percent to 88.2 in April from March’s 83.0, which had been the lowest reading since the index’s inception in 2001. April’s index is the highest since October 2007. The index was still down by 13.1 percent from last April.
The index is based on signed contracts for existing single-family homes, condos and co-ops. It is a leading indicator of NAR’s existing home sales, which are based on closing, as the signed contract for the purchase of a home generally precedes its closing by one to two months. The increase in pending home sales suggests that existing home sales should increase in the near term. According to NAR, pending sales contracts have increased significantly in areas with large price declines.

The gain in the index was surprisingly large and may have been influenced by seasonal adjustments due to early Easter. Other leading indicators of home sales were not as rosy. The Mortgage Bankers Association’s weekly survey of mortgage applications showed that the purchase index declined in April and May. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, a measure of home builders’ confidence, continued to hover near a record low in April and edged down further in May.

Long-term yields declined following news of a jump in pending home sales. The yield on 10-year Treasuries rose eight basis points and hovered around 3.99 percent by mid-Monday afternoon.