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Pending Home Sales Report for August Better-than-Expected

A report released today by the National Association of Realtors(NAR) showed a 4.3 percent jump in pending home sales in the month of August, which was better than the slight improvement analysts had forecast.

The numbers were probably helped out by the extension of the closing deadline of federal homebuyer tax credits. Taxpayers were originally required to sign purchase agreements by April 30^th and close by June 30^th, but the closing deadline was extended to September 30^th. Analysts say that the extension has drawn out the effects of the stimulus package on the housing market, leading to sales higher than they would be if the original June deadline had remained.

A recent survey conducted by Bloomberg showed economists predicting an August increase in pending sales of 2.8 percent, following an increase of 5.2 percent in July. Even with the increase, pending home sales are still just over 20 percent below levels seen in August 2009. Three of the nation's four regions saw an August increase in pending sales, as the Midwest saw a pending sales rise of 2.1 percent, the South up 6.7 percent, and the West up 6.4 percent. The Northeast, meanwhile, experienced a dip of 2.9 percent in pending home sales.

The NAR's chief economist, Lawrence Yun, commented on the August pending sales report by saying that the data is consistent with a steadily improving market, though he also cautioned that the market still has a long way to go. He said that near-record affordability does appear to be enticing buyers into the market, but a sustainable recovery will depend on substantial job creation and that any sudden raining of interest rates could set the recovery back substantially.

Typically, reports on new and existing home sales are viewed as more reliable indicators of activity in the housing market than pending home sales because a number of pending home sales usually fall through due to complications in the house-buying process which keep sales contracts from being finalized. Recent data on both new and existing home sales has many economists believing a bottoming process has begun in the overall US real estate market. Existing home sales jumped 7.6 percent in August to a seasonally adjusted annual rate of 4.12 million units, while new home sales for the month remained at a rate of 288,000, the second lowest rate since 1963. The data would suggest, according to the more optimistic of economists, that home sales should rise overall because new home sales can't fall much lower.

Pessimistic economists, on the other hand, point out that hindered job growth will likely continue to limit sales and the massive unsold inventory will continue to keep prices down, and possibly cause buyers to delay their home purchases believing a better deal possible down the road. Both optimists and pessimists among economists, however, do appear to agree that a net surplus of 150,000 jobs per month would boost both consumer confidence and average household wealth, greatly increasing the odds of a quicker recovery in housing.