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Pending Home Sales Increase for Second Consecutive Month

Pending home sales have increased for the second month in a row, according to the ""Pending Home Sales Index"":http://www.realtor.org/research/research/phsdata (PHSI)released Monday by the ""National Association of Realtors"":http://www.realtor.org/ (NAR).


The index is a forward-looking indicator, and rose 4.3 percent in August to 82.3 percent. The calculation is based on contracts signed in August.

Lawrence Yun, NAR chief economist, says a continuing rise is to be expected from favorable affordability conditions and possible job creation, but says a sudden rise in mortgage rates could stall the recovery.

""Current low consumer price inflation has helped keep mortgage interest rates very attractive this year. 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,"" he said. ""In the meantime, housing affordability is hovering near record highs.""


But Paul Dales, an economist at Capital Economics, warns that these numbers do not necessarily mean a recovery is in sight.

""The increase in the US pending home sales index in August all-but confirms that housing activity is finally beyond its post-tax credit floor. But with underlying economic conditions still so weak, a robust housing recovery remains highly unlikely,"" he said, adding ""high unemployment, modest income growth, widespread negative equity and a desire to reduce existing debts are preventing households from taking advantage of record low mortgage rates. Households are simply unable to, or do not want to, buy a home. The problem is not the level of borrowing costs, meaning that more quantitative easing by the Fed is unlikely to make much difference. The upshot is that housing activity will remain weak for a number of years yet.""

Though the PHSI for the U.S. increased, the index's numbers are still somewhat off-putting. In the Northeast the PHSI actually declined 2.9 percent in August and now sits at 28.8 percent below the index for August 2009. The Midwest saw its index rise 2.1 percent but it is still 26.5 percent below its 2009 index. In the South sales are 13.1 percent below August 2009 sales despite a 6.7 percent increase in August.

The Pending Home Sales Index is an indicator based on pending sales of existing homes. A sale is listed as pending when the transaction has not yet closed but the contract has been signed. The sale is usually finalized within one or two months of signing. The index is based on a large national sample.

The PHSI is released monthly by the Chicago, Illinois-based NAR.