Pending Home Sales Rise In June

In back to back months, pending home sales – a measure of sales contracts signed but not yet closed – have risen, giving another sliver of hope to the beleaguered housing market.

The National Association of Realtors (NAR) reports its Pending Home Sales Index rose 2.4 percent to 90.9 in June from 88.8 in May. Perhaps better news, the reading is nearly 20 percent above the June 2010 rate. While recent real estate data has shown improvement from month to month, it has normally suffered in comparison to 2010 data.

West and south lead

While all regions of the country showed strong double-digit growth over last year, pending sales were strongest in the West and South.

“For the majority of transactions, the lag time between pending contacts to actual closings is one to two months,” said Lawrence Yun, NAR's chief economist.

“Therefore, the two consecutive months of rising activity should lead to overall improvement in closed sales in upcoming months.”

What could prevent a pending sale from closing? These days, lots of things. For starters, the buyer might not qualify for a mortgage. Also, the home might not appraise high enough to suit the lender. And in some cases, a buying could become unemployed before the loan closes. Yun, however, is optimistic that more an more loans will successfully close.

“Though a higher than normal cancellation rate can hold back final closing figures, it could well be that some past cancellations are nothing more than delayed buying decisions rather than outright cancellations,” he said.

More loans, please

Yun said tight credit and economic uncertainty have been constricting the market. In what has become a constant refrain from Realtors, he said the best way to ensure a more solid recovery in housing is to simply return to normal, sound credit standards so more creditworthy home buyers can get a mortgage.

“Washington also should not rock the boat with policy changes that would negatively impact affordable credit or otherwise increase the cost of buying or owning a home,” Yun added.

Read that to mean Realtors are concerned about the ongoing debt limit fight and the probable downgrading of U,S. debt, which will push interest rates higher. Additionally, some in Washington have openly advocated limits on the mortgage interest deduction, a sacred cow within the real estate industry.