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Pending Home Sales Surge Unexpectedly in October

Industry data released Thursday showed that the number of contracts signed for home purchases climbed in October. The news came as a surprise to analysts and industry professionals who have been anticipating a[IMAGE]

continued falloff in buyer demand due to the typical seasonal slowdown in home sales, compounded by concerns that servicers' affidavit problems could muddy some transactions.

The ""National Association of Realtors"":http://www.realtor.org (NAR) says its gauge of pending home sales rose 10.4 percent for the month of October. The trade group's index is based on contracts signed during the month for purchases of previously owned homes. Actual closings typically lag contract signings by one to two months.

The October increase follows a 1.8 percent drop in pending sales for the month of September. Economists surveyed by _Bloomberg News_ were forecasting another decrease of 1.0 percent in the latest numbers.

NAR's pending sales reading remains 20.5 percent below the measurement documented in October 2009, but that's when first-time homebuyers were rushing to ink their names to deals to take advantage of the federal tax credit.

Following the expiration of the final tax credit offering this spring, the pending sales index plunged a staggering 30 percent in May and then fell further to a cyclical low in


June. October's increase represents the third rise recorded since that low was hit.

Commenting on the latest numbers, Paul Dales, U.S. economist for ""Capital Economics"":http://www.capitaleconomics.com, said, ""The surge in the U.S. pending home sales index in October is the first piece of good news on the housing market for some weeks. But it doesn't alter our view that a weak housing rebound will continue to hold the wider economic recovery back.""

Dales added, though, ""The fact that those contracts were signed while some major banks halted all foreclosure sales is encouraging. It seems the impact of the foreclosure crisis was much more modest than anecdotal reports suggested and was more than offset by households starting to take advantage of low mortgage rates.""

According to Dales, the latest pending sales reading suggest existing home sales should rise from a 4.43 million annual pace in October to just under 5 million for November.

Lawrence Yun, NAR's chief economist, noted that extreme housing affordability brought on by the current market conditions is drawing homebuyers.

""It is welcoming to see a solid double-digit percentage gain, but activity needs to improve further to reach healthy, sustainable levels,"" Yun added. ""The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011.""

Yun says a return to more normal loan underwriting standards will also play a key role in moving the housing and economic recovery along, and he points to recent loan performance data from Fannie Mae and Freddie Mac that he says clearly demonstrates very low default rates on recently originated mortgages, much lower that the vintages of 2002 and 2003 before the housing boom. Yun contends, though, that some underwriting fees for very low risk borrowers are unnecessary and should be removed to allow more sales transactions to move forward.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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