Pending home sales declined 1.3 percent in July but remain well above 2010 levels, according to new research by the National Association of Realtors (NAR).
The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell to 89.7 in July from 90.9 in June, but is 14.4 percent above the 78.4 index in July 2010.
The index, which is based on pending sales of existing homes, is a leading indicator for the housing sector. A sale is listed as pending when the contract has been signed but the transaction has not closed. An index of 100 is equal to the average level of contract activity during 2001, which is used as a basis for a healthy housing market.
“Looking at pending home sales over a longer span, contract activity over the past three months is fairly comparable to the first three months of the year, and well above the low seen in April,” said Lawrence Yun, NAR’s chief economist. “The underlying factors for improving sales are developing, such as rising rents, record high affordability conditions and investors buying real estate as a future inflation hedge. It is now a question of lending standards and consumers having the necessary confidence to enter the market.”
More specific, regional data from the index included:
- The Northeast declined 2.0 percent to 67.5 in July but is 9.7 percent above July 2010.
- The Midwest slipped 0.8 percent to 79.1 in July but is 18.8 percent above a year ago.
- Pending home sales in the South fell 4.8 percent to an index of 94.4 but are 9.5 percent higher than July 2010.
- The West rose 3.6 percent to 110.8 in July and is 20.6 percent above a year ago.
Yun also said that aside from pending sales, other factors of the housing market will need to improve for stabilized growth.
“The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” Yun said. “We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process.”