June 14, 2008 - A positive development may have begun to take shape as the surplus of some 5 million unsold homes may actually be declining. Surprisingly pending home sales rose in April to the highest level since October. An improvement in home sales is mandatory for a meaningful turn around in the housing sector as the broader U.S. economy will remain hostage to the housing slump until stabilization occurs. Inventory levels continue to remain quite high, putting downward pressure on prices in spite of signals now appearing in select markets reflecting that sales could be bottoming out. The index of pending home re-sales increased a surprising 6.3% for the month of April, revealing its highest level since 2001, though overall pending re-sales remain down 13% from the same period a year ago, from April of 2007. Pending re-sales is an indicator of purchase contract signings however it is the report on existing home sales which reflects the closing of escrow and typically occurs several months after a contract signing. It is important to note that the pending-sales index reflects a sampling of 20% of the transactions listed on the multiple listing service (or MLS) which is the industry standard for listing properties by real estate agents. However the existing home sales report reflects a broader sample size of 40% of the transactions.
Yet additional housing data may be needed to provide conclusive evidence that the housing sector is truly rebounding. There are many indications that home sales may continue to decline and that the tighter lending climate will also contribute to lackluster sales. Loan applications appear to have declined 13% from the beginning of May, hitting their lowest level in five years. Both a decline in consumer confidence, heightened by the spike in fuel and food prices, along with the tighter credit standards, work in tandem to create an outlook for housing along with an economic turnaround that’s uncertain.
