Pending Home Sales Index Rose in October

Washington, DC, December 10, 2007—The Pending Home Sales Index, an indicator based on contracts signed in October, increased 0.6% to an index of 87.2 from an upwardly revised reading of 86.7 in September, according to National Association of Realtors. It was the second consecutive monthly gain, but remained 18.4% below the October 2006 index of 106.8.

Lawrence Yun, NAR chief economist, said, “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007.”

However, NAR said, a recovery for new-home sales is unlikely before 2009.

Yun said the worst part of the credit crunch has already worked its way through the data. “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he said. “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”

The PHSI in the Northeast jumped 16.0% in October to 80.6 but is 11.1% below a year ago. In the West, the index rose 8.4% to 87.3 but is 16.9% lower than October 2006. The index in the Midwest slipped 1.4% in October to 85.5 and is 11.7% below a year ago. In the South, the index dropped 7.8% in October to 91.6 and is 25.3% below October 2006.

“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun said. “Lawmakers need to understand that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.”

Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006. Existing-home prices should be down 1.9% to a median of $217,600 for all of 2007, and then rise 0.3% to $218,300 in 2008.

New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0% to $239,100 for 2007, and then decline another 0.2% to $236,600 in 2008.