There was more evidence today the housing sector needs a shot in the arm. Pending home sales, a measure of contracts signed but not yet closed, fell 1.3 percent in July from the month before.
It's the latest statistic suggesting a housing recovery that showed tepid signs of life early in the year is running out of gas.
Even though the July number is up 14.4 percent from July 2010, Lawrence Yun, chief economist for the National Association of Realtors (NAR), says sales activity is clearly under performing.
“The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” Yun said. “We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process.”
In fact, June saw a dramatic drop off in contract closings, compared to signed contracts. In many cases, Yun said, the sales couldn't close because the homes failed to appraise high enough to meet mortgage company standards.
Regional breakdown
Regionally, pending sales made the best showing in the west. There, the Pending Home Sales Index (PHSI) rose 3.6 percent to 110.8 in July and is 20.6 percent above a year ago. However, that's the only region that posted an increase last month.
The PHSI in the Northeast declined 2.0 percent to 67.5 in July but is 9.7 percent above July 2010. In the Midwest the index slipped 0.8 percent to 79.1 in July but is 18.8 percent above a year ago. Pending home sales in the South fell 4.8 percent to an index of 94.4 but are 9.5 percent higher than July 2010.
“Looking at pending home sales over a longer span, contract activity over the past three months is fairly comparable to the first three months of the year, and well above the low seen in April,” Yun said. “The underlying factors for improving sales are developing, such as rising rents, record high affordability conditions and investors buying real estate as a future inflation hedge. It is now a question of lending standards and consumers having the necessary confidence to enter the market.”
