Pending Sales Decline Despite Signs of Economic Recovery

Despite indications of economic recovery – such as job growth and some stabilization in home values – pending home sales dropped for the third consecutive month in September, according to the National Association of Realtors (NAR). Nationally, pending sales of existing homes – including REOs and short sales – dropped 4.6 percent for the month, falling from an index level of 88.6 in August to 84.5 in September. NAR’s pending home sales index is a forward-looking indicator that reflects contract signings but not closings. “It is a very strange situation, because we have a record-high affordability index, meaning that it has never been a better time to buy” and yet, “people are not responding,” says Lawrence Yun, NAR’s chief economist. Yun terms America’s current monetary policy “contradictory and confusing.” While the Fed tries to bring liquidity to the market, other organizations are restricting liquidity, he says. The result is that consumers with the greatest financial capacity and high credit scores are forced into jumbo loans with higher interest rates, according to Yun. “A combination of weak consumer confidence and continuing tight lending criteria held back home buyers, even though the private sector added nearly 2 million net new jobs in the past 12 months,” Yun states. The greatest drop in pending home sales occurred in the Midwest, where pending home sales dropped 6.2 percent to 71.5. However, pending sales in the region are still 1.23 percent higher than in September 2010. The South experienced the second-greatest drop, falling 5.5 percent over the month of September to 91.6. This rate is 5 percent higher than the rate seen last year in the South. Pending home sales in the Northeast fell by 4.7 percent, arriving at 60.0 for the month. September pending sales in the Northeast are also higher than last year – by 4 percent. The West experienced the smallest decline – a 2.1 percent drop – and ranks highest in pending sales in September – 105.8. Compared to last year, pending home sales in the region are 5.6 percent higher. With the release of NAR’s Pending Home Sales Index, Yun also took the opportunity to express his support of reinstating the previous increase in the conforming loan limit. The temporary increase in the conforming loan limit expired at the end of September, but the Senate just voted to reinstate the temporary increase through 2013. “Just leaving excessive cash to sit in banks and not work into the economy is a drag on the overall recovery,” Yun says. “We need a comprehensive approach to address housing issues – not additional impediments.”