Pending home sales increased for the fourth-straight month, rising a tiny 0.1% to 90.7 in May. The index which measures contracts signed for existing homes but not yet closed is up 6.7% versus May 2008.
The National Association of Realtors was quick to point out that the last time pending home sales increased for four-consecutive months occurred in October 2004.
The forward-looking indicator is providing strong evidence that potential home buyers are growing more confident. But existing home sales for May suggested we are not yet seeing the pick up in demand that the Pending Home Sales Index is signaling.
Closings can take anywhere from three to six weeks or more, depending on individual factors. So we may see the long-awaited rise in June. But the NAR took a different angle last week.
Lawrence Yun, the chief economist for the NAR, said historically low interest rates are helping, and first-time home buyers "are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory.
"However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”
Today, the NAR President Charles McMillan said, “We see that distressed homes often are selling for 20% less than normal homes in the same area, but some appraisals don’t distinguish between traditional homes and distressed property. In many cases appraisers from outside the area are being used, but as everyone knows real estate is local and appraisals should be done by an expert with local expertise.”
In fairness, appraisers were, in some cases, feeling pressure to "hit the number" back in the housing boom. We may be seeing the pendulum swing back too far as the nation attempts to move beyond the housing debacle.
Mortgage applications disappoint
Pending home sales are a forward-looking indicator of existing home sales, which make up over 90% of the residential real estate market. The index, as mentioned above, appears to be foreshadowing the long-awaited improvement in housing sales.
However, the Purchase Index from the Mortgage Bankers Association paints a different picture. The index fell a steep 4.5% to 267.7 in the latest week after showing some strength in the prior week. The Purchase Index is off the lows but remains at depressed levels.
Meanwhile, the Refinance Index dropped 30% to 1482.2. The rise in mortgage rates from lows seen a couple of months ago has stifled the mini refi boom that began in the spring.Separately, today's ISM release is available at Examiner.com.
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