Pending Home Sales Drop After Two Months of Gains

NAR predicts "modest recovery" in 2011 despite foreclosure moratorium

Pending home sales for September were down 1.8%, to 80.9, after increases in July and August. The National Association of Realtors predicted Friday that there would be an uneven recovery going into 2011, punctuated by “near-term disruptions” from the foreclosure moratorium.

The Pending Home Sales Index dropped on September contract signings, which were down from August’s upwardly revised figure of 82.4. That’s down 24.9% from the September 2009 index of 107.8, when first-time buyers surged into the market to benefit from the government’s tax credit before its November 2009 expiration, which was later extended to April 30.

Lawrence Yun, NAR’s chief economist, said in a statement that, despite the slump and anticipated rocky showing due to the moratorium, the “pent-up demand . . . eventually will be unleashed as banks resolve their issues with foreclosures and the labor market improves. However, tight credit and appraisals coming in below a negotiated price continue to constrain the market.”

In the Northeast, a 1.7% drop from 59.6 was 28.3% lower than in 2009; the Midwest’s index drop was 5.7%, 33% lower than September of 2009 at 64.2; sales in the South dropped by 3.5%, to 87.6, down 19.1% from last year. But in the West the index rose 3.5%, although at 104.6 it is still 24.7% under last year’s level.

That single bright spot was definitely not what economists had hoped for or expected. According to Ian Shepherdson, chief U.S. economist for High Frequency Economics in Valhalla, N.Y., the consensus had been an expectation of a third straight month of increases at the now heady-seeming rate of 3%.

Shepherdson said, “This is a splash of cold water after the payroll report, not that we have been expecting the housing market to lead the economy forward.” Weak applications, he added, made it likely that any real housing recovery would have to wait till the second half of 2011, with only “a gradual increase in activity over the next few months.”

The September pending sales index, said Shepherdson, “is consistent with October existing home sales falling to about 4.4 million from 4.53 million in August”; he called it “[d]isappointing.”

Yun predicted that existing home sales were likely to rise, albeit not consistently. “For 2011 we should see more than 5.1 million existing-home sales, up from about 4.8 million this year. Housing starts are expected to rise to 716,000 in 2011 from 598,000 this year,” he said, adding that in the past 10 years 30 million people have been added to the U.S. population—a group that should stimulate more demand “that could come to the market once the economy gathers momentum.”

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