Tight Credit, Continued Recession Stunt Pending Home Sales

After surging in August, pending home sales swung into a decline based on contracts signed during September, according to a report released Friday by the National Association of Realtors. The pending home sale index – which measures sales based on offers accepted by sellers although no deal has yet closed – declined 4.6 percent to 89.2 from the upwardly revised reading of 93.5 taken in August. Although pending home sales generally declined in September, they still stand above last year’s index of 87.8, according to NAR’s data, marking the second consecutive month of year-over-year pending sales gains. “The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we’re still in a broad period of stabilization,” NAR economist Lawrence Yun said. “Conditions remain mixed around the country,” in areas like Long Island, Boston, Minneapolis, Denver and Washington, D.C., which show annual sales gains. The pending sales index in the West rose 3.7 percent to 113.6 in September, coming in at 39.5 percent over last year’s index. The Midwest index slipped 0.7 percent to 83.3, 3.1 percent below the index in September 2007. The South region’s index came in at 89.0, 7.9 percent below the previous month and 11.3 percent below last year’s level. The Northeast index dropped 16.8 percent to 66.4 in September, down 9.4 percent from the index in September 2007, according to NAR’s data. Home prices in Las Vegas, Phoenix and many California and Florida markets have fallen by more than 20 percent for all of 2008, NAR reported. New-home sales should total 487,000 for the year and 413,000 in 2009, according to Yun, who also projected a rise to 520,00 new-home sales in 2010. Existing-home sales and inventory conditions must recover before construction on new homes can improve, Yun said in the NAR report. Yun projected that the unemployment rate, announced Friday at a 14-year high of 6.5 percent in October, might average as much as 7.0 percent in 2009. The resulting tight finances and tighter credit have brought pending home sales creeping downward, according to NAR president Richard F. Gaylord. “Consumer spending has halted and businesses are very cautious of expanding.” The NAR has already sent its own housing stimulus plan to Congress in October in an attempt to stabilize the housing industry and boost the economy, according to a press statement Thursday. The plan included provisions to eliminate repayment of the current first-time home buyer tax credit and make the credit available to all home buyers. “The depth of the recession depends entirely on housing – with sufficient housing stimulus, the recession will be shallow,” Yun said. “If government actions stay focused on housing, the cost to the Treasury would be much less that the potential losses in the nation’s output and income in a severe recession.” Read the NAR report. Write to Diana Golobay at [email protected].