Pending Home Sales Highest in Over a Year-and-a-Half

Pending home sales continued to rise in November, reaching their highest level in 19 months, the ""National Association of Realtors"":http://www.realtor.org (NAR) reported late last week.

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The trade group's index of signed sales contracts jumped 7.3 percent between October and November and is 5.9 percent above its level a year earlier. The last time the index was higher was in April 2010 as buyers rushed to beat the deadline for the homebuyer tax credit.

James Frischling, president and co-founder of ""NewOak Capital"":http://www.newoakcapital, says the latest results are likely to feed the view that there is a recovery going on in the housing market.

""This was an unexpected jump-up, with every region showing gains including a 15 percent increase out west, which has been the hardest hit area since the housing bubble burst,” Frischling noted.

Despite the strong gains atypical of the season, Frischling remains cautious. He says with contract cancellations above 30 percent, Realtors are keenly aware that it’s premature to conclude a housing recovery is underway based on November’s strong pending sales report.

Lawrence Yun, NAR’s chief economist, agrees that contract failures have been running unusually high.

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“Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage,” he said.

Still, Yun described November sales activity as “doing reasonably well in comparison with the past year.”

“The sustained rise in contract activity suggests that closed existing-home sales, which are the important final economic impact figures, should continue to improve in the months ahead,” Yun added.

According to Frischling, the overarching question is whether there are a sufficient number of buyers to absorb the supply of homes which will inevitably hit the market.

With the foreclosure pipeline still growing and over 6 million borrowers behind on their mortgage payments, he says the inventory of homes available for sale will continue to build up, putting downward pressure on home prices and holding back any meaningful recovery.

“Yet with the rental market on fire, an improving jobs picture, and with interest rates being so low, the spike in contracts signed was a welcomed way to finish the year,” Frischling said. “The follow-through on these pending home sales will tell whether the positive factors facing the housing market outweigh the negative and if this market has finally turned the corner.""

NAR ""acknowledged last month"":http://dsnews.comarticles/existing-home-sales-rise-in-november-2011-12-21 that it over-estimated actual sales closings for existing homes, going back to 2007. The trade group has adjusted sales and inventory figures for the last four years downward by 14.3 percent, citing discrepancies between sales reported by multiple listing services (MLSs) and sales included in its U.S. Census benchmark.

Pending home sales, however, are not affected by the recently published re-benchmarking of existing-home sales, according to NAR, namely because the pending sales index uses a different methodology based directly on contract signings and is adjusted for seasonality.