Pending home sales drop as expected

July 1, 2010

WASHINGTON – July 1, 2010 – Following a surge driven by the homebuyer tax credit, pending home sales fell, according to the National Association of Realtors® (NAR). To qualify for the credit, homebuyers needed a signed contract by April 30, 2010.

The Pending Home Sales Index (PHSI), a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April, and is 15.9 percent below May 2009 when it was 92.3. The falloff comes on the heels of three strong monthly gains as homebuyers rushed to take advantage of the tax credit.

The data reflects contracts and not closings, which normally occur with a lag time of one or two months. However, many closings have been delayed recently from a rush of buyers into the system and slow processing of short sales, in addition to the heavy volume and a more thorough loan underwriting process.

“Consumers are rational and they rushed to meet the (April 30) tax credit eligibility deadline in April,” says NAR chief economist Lawrence Yun. “The sharp decline in contract signings in May is a natural result with similar low levels of sales activity anticipated in June. Surprisingly, though, some local markets such as Portland, Maine, and Jacksonville, Fla., actually experienced an increase in contract signings from a year ago without the tax credit.

“Existing-home sales that close in June will remain elevated, but we’ll then see a notable decline for July and August.”

A lapse in the National Flood Insurance Program also contributed to the decline in new contracts. Many lenders were hesitant to approve mortgages on homes that require flood insurance without congressional action, and numerous sales have been on hold.

Yun noted that the tax credit broadly stabilized home prices. “Without the tax credit, there will be more aggressive price negotiations between buyers and sellers,” he says. “The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private sector job creation in the second half of the year. We’ll also keep a close eye on market conditions on the Gulf Coast.”

Through May of this year, 495,000 net private sector jobs have been created; NAR’s forecast for employment growth is about 1 million additional net new jobs over the balance of the year and another 2 million in 2011.

“If jobs come back as expected, the pace of home sales should pick up later this year and reach a sustainable level of activity given very favorable affordability conditions,” Yun said.

“In most areas of the country there will be no sharp snap back in home prices in the upcoming years, although some local markets have experienced double-digit gains this year,” Yun said. NAR forecasts the national median home price to rise only 4 percent cumulatively over the next two years.

“One factor that could lead to price acceleration in upcoming years for some markets is if the very low levels of new home construction were to persist for another year or two,” he added.

The PHSI in the Northeast fell 31.6 percent to 67.0 in May and is 14.8 percent lower than May 2009. In the Midwest the index dropped 32.1 percent to 70.8 and is 20.2 percent below a year ago. Pending home sales in the South fell 33.3 percent to an index of 82.5, and are 14.4 percent lower than May 2009. In the West the index declined 20.9 percent to 85.3 and is 15.1 percent below a year ago.

Reprinted with permission. Florida Realtors®. All rights reserved.

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9 Responses to “Pending home sales drop as expected”

  1. Signs Melbourne on July 2nd, 2010 2:07 am

    So things are still not great in the USA in terms of the property market eh?
    I thought you guys were on the rebound. Australia is not faring too badly, though price do seem to be somewhat inflated due to a housing shortage, so we’ll see how that pans out…
    Thanks for posting.

  2. Alexis on July 6th, 2010 2:56 am

    It seems that everyone is hanging back so that they buy at the bottom. This cycle seems to all over the western world at the moment and I think it is responsible for inflating house prices even further.

  3. Wayne Pruner on July 14th, 2010 11:24 pm

    It is no surprise that pending home sales dropped with the expiration on the Home Buyers Credit. The real estate market is going to languish until unemployment drops. Additionally, the people who have a short sale or a foreclosure on their record are going to be out of the market for 5 to 7 years. We need jobs!

  4. Palmdale Homes on July 17th, 2010 2:58 pm

    An increase in jobs is what the country really needs after the end of the tax credit, which brought out a lot of buyers, who got a great price and interest rate for their home.

  5. Mark Sumpter on July 24th, 2010 4:55 pm

    I agree with the previous two comments, a reduction in unemployment will do the market a world of good, not to mention the country.

  6. Insulation on July 27th, 2010 10:08 am

    there are so many external factors impacting the housing market at the moment that I wonder when it will ever sort itself out and get back to normal? It’s the same in the UK at the moment

  7. greddy turbo on August 5th, 2010 4:45 am

    This was expected I guess! And I agree with the people who say reduced unemployment would certainly brighten up things…

  8. Chris @ Jacksonville Homes on August 17th, 2010 4:49 am

    The pending sale has been increased, I think its because of the unavailability of financing.I hope the pending sale will decrease in the near future.

  9. Cape Coral Builders on August 19th, 2010 2:21 pm

    Let’s hope now that they have extended the Homebuyer Tax credit that things will start to pick up again. We have noticed some positive signs as a result of this, but we are competing each day not only with the bad economy, but with the huge amount of existing home inventory on the market. As you know people are slashing the prices of their homes so much just to get out from under their mortgage, or pending foreclosure, and we in turn are having to adjust accordingly to what everyone else is doing in our area.

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