After many months of mixed and often disheartening home data, a report this week by National Association of Realtors indicates that pending home sales rose strongly in May. The year-over-year rise in sales was seen across all regions, pointing to higher housing activity in the second part of 2011, and boding well for home prices, says NAR.
NAR’s Pending Home Sales Index rose 8.2% in May from its April level, and posted a 13.4% gain over its May 2010 reading. The index is based on contract signings, rather than closings, which normally reflect a one- to two-month lag.
“Absorption of inventory is the key to price improvement, and this solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace,” said Lawrence Yun, NAR’s chief economist. “Some markets have made a rapid turnaround, going from soft activity to contract signings rising by more than 30% from a year ago, including areas such as Hartford, Conn.; Indianapolis; Minneapolis; Houston; and Seattle.”
Yun noted a “nonsensical” situation that has formed due to the Department of Housing and Urban Development’s inability to complete foreclosure deals in some states because of insufficient funds to pay attorney fees at closing, even with buyers offering the full listing price.
Since bottoming last June, pending home sales have risen unevenly in seven of the past 11 months, NAR said. “Home sales still could be 15 to 20% higher,” Yun said. “If banks would simply return to normal sound underwriting standards and begin lending to more creditworthy borrowers, we’d get a much faster recovery in the housing sector.”
Written by Elizabeth Ecker