October 9, 2008
The real estate market showed a pulse in August, with pending home
sales rising 7.4 percent, the biggest one-month increase since October
2001, according to the National Association of Realtors. At the same
time, prices continued to fall.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in August, jumped to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.
"What we're seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region," said Lawrence Yun, NAR chief economist. "It's unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we're hopeful most of the increase will translate into closed existing-home sales."
Independent economists speculate that "vultures" are moving in to take advantage of foreclosures and other distress sales, but agreed that it could be a positive sign that the market is approaching a bottom.
The PHSI in the West surged 18.4 percent to 109.5 in August and remains 37.8 percent above a year ago. In the Northeast the index jumped 8.4 percent to 79.8 and is 2.0 percent higher than August 2007. The index in the Midwest rose 3.6 percent to 84.5 in August and is 6.6 percent above a year ago. In the South, the index increased 2.3 percent to 96.0 but is 2.1 percent below August 2007.
"Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie," Yun said. "August shows some unleashing of pent-up demand before the credit crisis accelerated in September."
He cautioned that the sampling size for pending home sales is smaller than the track on existing-home sales, so there is more volatility in the forward-looking series.
"We need to see just how much of this gain holds up," Yun said.
