Increase in Pending Sales May Not Indicate Market Upswing

The National Association of Realtors (NAR) released its Pending Home Sales Index Thursday, revealing an increase in pending home sales for the month of June, marking the third of the last four months that the index has increased.

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The index rose to 90.9 in June, an increase of 2.4 percent from May and a 19.8 percent increase from June 2010 just after the home buyer tax credit expired.

NAR’s Pending Home Sales Index is a forward-looking index revealing contracts but not actual closings.

“For the majority of transactions, the lag time between pending contacts to actual closings is one to two months. Therefore, the two consecutive months of rising activity should lead to overall improvement in closed sales in upcoming months,” says NAR chief economist, Lawrence Yun.

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“Though a higher than normal cancellation rate can hold back final closing figures, it could well be that some past cancellations are nothing more than delayed buying decisions rather than outright cancellations,” Yun continues.

However, chief economist at Fannie May, Doug Duncan, responded to the index results by warning people not to take the rise as a sign of a market turn-around.

“[C]aution should be exercised regarding this upward trend in contract signings, as these have not yet materialized into closings, which dropped in June for the third consecutive month,” Duncan says.

The share of distressed sales decreased along with existing home sales, according to recent data from NAR.

“Low appraisals compared to contract prices and heightened uncertainty about the economic recovery may have led to increased numbers of contract cancellations,” he says.

The upcoming expiration of the increased conforming loan limitâ€"set to expire September 30â€"could also be contributing to the decrease in existing sales.

The Pending Home Sales Index revealed decreases for both the Northeast and Midwest for the month of Juneâ€"0.4 percent and 3.7 percent respectively.

The South and West experienced rises in pending home sales for the monthâ€"4.4 percent and 6.4 percent respectively.

All four regions revealed double-digit increases from June 2010.