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NAR’s Index of Pending Home Sales Unexpectedly Climbs

Following a sharp drop in the months immediately after the homebuyer tax credit expired, the ""National Association of Realtors'"":http://www.realtor.org (NAR) gauge for future sales of previously owned homes has risen.


NAR reported Thursday that its ""Pending Home Sales Index"":http://www.realtor.org/research/research/phsdata, a forward-looking indicator based on contracts signed in July, increased 5.2 percent from last month's reading. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

The index remains 19 percent below measurements recorded a year ago, but the month-to-month jump was an unexpected development, and some analysts are saying it may be a sign that the post-tax credit lull in home sales will soon come to an end. A group of economists surveyed by _Bloomberg_ were expecting the pending sales index to fall by 1 percent.

The national index had fallen 29.9 percent based on contract signings in May â€" closely reflected in ""July’s 27 percent drop"":http://dsnews.comarticles/existing-home-sales-post-worst-showing-in-more-than-decade-2010-08-24 in actual existing-home sales. It lost another 2.8 percent after NAR’s analysis of June’s contracts, likely


a good indicator of where August’s actual sales will end up. The latest 5.2 percent increase could be a telling sign of September’s sales numbers.

Despite the bit of good news his organization offered the markets with its Thursday report, Lawrence Yun, NAR's chief economist, cautioned that the recovery ahead will be a slow and lengthy one.

""Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,"" Yun said. ""But the recovery looks to be a long process. Homebuyers over the past year got a great deal [but] for those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.""

Pending home sales are currently up in every region of the country. The Northeast saw an increase of 6.3 percent; the Midwest’s index rose 4.1 percent; the South posted a 1.2 percent gain; and the West was the big leader, with an 11.6 percent increase.

Paul Dales, U.S. economist for the research firm ""Capital Economics"":http://www.capitaleconomics.com, says though, that the key point is that economic conditions are not strong enough to generate a decent housing recovery.

“Processing delays mean that the relationship between pending home sales and actual existing home sales has loosened in recent months,” Dales said. “But at face value, the former is now consistent with a rise in existing sales from July's record low of 3.83m to around 4.40m in August.”

Dales added, “That would be a spectacular-sounding 15 percent month-to-month jump, but it would not even reverse the falls seen after the expiry of the tax credit and would leave sales at levels not sustained since 1997.”