Pending Home Sales Up 8.2% in May

Original Post Date: June 29, 2011

By: Alan Zibel and Tom Barkley

WASHINGTON—The number of people who signed contracts to buy previously occupied homes in the U.S. rose last month, but was still low from a historical perspective, as the housing market remained a weak sector of the economy.

The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes increased 8.2% on a monthly basis to a reading of 88.8, the industry group said Wednesday. It was the strongest monthly gain since last November.

Economists surveyed by Dow Jones Newswires had expected pending home sales would rise by 10.0% in May from an original April reading of 81.9. That month’s reading was revised up to 82.1.

The pending sales index for May was 13.4% above its level in May 2010, a month in which sales fell dramatically after the expiration of a federal tax credit.

“This solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace,” said Lawrence Yun, NAR’s chief economist.

However, many economists caution that the housing market is a troublesome part of the economy. Foreclosures continue to depress home values and sales levels remain historically weak. Many housing markets face a backlog of foreclosed houses that have been delayed by banks’ difficulty processing paperwork used to seize properties.

Prices were up 0.7% in April when compared with March, according to the Standard & Poor’s/Case-Shiller 20-city index, a measure of home prices in large metropolitan areas. But after accounting for a typical pickup in prices at the start of the spring buying season, home prices were almost unchanged from March.

The pending-sales index tracks agreements to purchase homes and is based on pending sales of existing homes, including single-family homes and condominiums. A reading of 100 refers to the level of sales in 2001.

A sale is considered pending when the contract has been signed, but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.

The index was up 12.9% in the West on a monthly basis and 10.5% in the Midwest. It rose 7.3% in the Northeast and 4.1% in the South.