Low interest rates and an $8,000 tax credit for first-time home buyers helped push pending home sales up for the third month in a row, another indication that the decline in the real estate market may be stabilizing, the National Association of Realtors reported on June 2.
The group's Pending Home Sales Index, a forward-looking indicator based on contracts signed in April, rose 6.7%, to 90.3 from a reading of 84.6 in March, and is 3.2% above April 2008, when it was 87.5, the group said. Economists surveyed by Thomson Reuters (TRI) had expected the index would edge up to 85 from a reading of 84.6 in March. It was the biggest monthly jump since October 2001.
Pending home sales activity was greatest in the Northeast, where the index increased 32.6%, to 78.9, in April, 0.8% above a year ago. The only region that showed a decrease was the South, where the index declined 0.2%, to 93.0, 3.5% higher than a year ago. In the Midwest the index rose 9.8%, to 90.4, and is 11.1% above April 2008. In the West the index rose 1.8%, to 94.8, but is 2.9% below a year ago.
Very Favorable Conditions
Lawrence Yun, the group's chief economist, said buyers are responding to very favorable market conditions, and while the total number of existing-home sales is expected to improve, there will be sharp local variations. "The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish or decline," Yun said in a news release.
Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future existing-home sales.
Paul Dales, U.S. economist for Capital Economics in Toronto, said in a report that if the April increase in pending home sales is reflected fully in existing-home sales numbers, it would bring them to an annual rate of 5.1 million, a level last seen before the collapse of Lehman Brothers in September.
"The pending home sales index has now improved for three months in a row, adding to the evidence that housing activity is finding a floor," Dales wrote. Nevertheless, even if existing-home sales were to rise to 5.1 million, they would still be 30% below their peak. Accordingly, even if activity is finding a floor, it is at staggeringly low levels."
The Associated Press contributed to this report.
Mintz is news editor for BusinessWeek.com in New York.