Pending home sales rise for second consecutive month

The National Association of Realtors’ Pending Home Sales Index ended the summer on a positive note, rising 4.3 percent in August from July to 82.3 based on contracts signed that month.

The data reflects contracts put on homes, with closings following in one or two months. Markets had expected the index to increase 3 percent.

July’s index rose 5.2 percent to 79.4 based from a downwardly revised 75.5 in June, making August the second consecutive month that pending home sales have increased.

Lawrence Yun, NAR chief economist, says the latest data is consistent with a gradual improvement expected in home sales in upcoming months.

“Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,” he says. “However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence.”

Although Yun expects a continuing steady rise in home sales, he cautioned any sudden rise in mortgage rates could slow the recovery.

“Current low consumer price inflation has helped keep mortgage interest rates very attractive this year,” he says. “However, recent rising trends in producer prices at the intermediate and early stages of production, along with very high commodity prices, are raising concerns about future inflation and future mortgage interest rates. Higher inflation would mean higher mortgage interest rates. In the meantime, housing affordability is hovering near record highs.”

According to Reuters, home sales and building activity are stabilizing after a steep decline following the end in April of a popular tax credit for home buyers. The rise in pending home contracts may indicate a modest gain of existing home sales this fall. However, high unemployment and a glut of homes on the market indicate recovery will be very weak.

In the West, which includes Colorado, the PHSI rose 6.4 percent to 101.1 but remains 19.6 percent below a year ago. The Northeast index declined 2.9 percent to 60.6 in August and remains 28.8 percent below August 2009. In the Midwest the index rose 2.1 percent in August to 68.0 but is 26.5 percent below a year ago. Pending home sales in the South increased 6.7 percent to an index of 90.8 but are 13.1 percent below August 2009.