U.S. pending home sales reversed course in May and increased 8.2% on a seasonally adjusted basis following an 11.3% decline in April, the National Association of Realtors reported on June 29. This increase also follows May's 3.8% decline in existing home sales and 2.1% decline in new home sales, which were reported last week. The pending home sales index is up 13.4% year over year, the first positive trend since the homebuyer tax credit expired in April 2010. However, the index is still about 30% below its early-2005 peak. This latest reversal suggests existing home sales are likely to increase in June because pending sales reflect contract signings rather than closings, and as a result they usually lead existing home sales by one to two months.
Standard & Poor's Ratings Services considers May's strong increase in pending sales to be a positive for the housing market and for the underlying collateral performance of U.S. residential mortgage-backed securities. However, the Mortgage Bankers Association's weekly mortgage applications index, which includes purchase and refinance loans, declined a seasonally adjusted 2.7% for the week ended June 24, following a 5.9% decline a week earlier. This was the fourth weekly decline during the past five weeks. The low level of mortgage applications for home purchases mean existing/pending home sales may not improve significantly just yet--even though mortgage rates are at a year-to-date low of 4.46%. This is a negative for the housing market. Overall, we expect home prices to remain weak this year, but mortgage applications, sales, and home prices are likely to improve at least during the summer months.
The National Association of Realtors has reported the pending sales of existing homes on a monthly basis for a large national sample since 2001. Pending sales reflect the time when the sale contract has been signed, but the sale has not been completed. As a result, the sales data represents contracts, but not closings. The actual sale usually is finalized within one to two months of contract signings, and as a result pending sales usually lead the existing home sales by one to two months. Pending sales is an index of 100, which is equal to the average level of sale contract activity during 2001. The pending home sales for June will be reported July 28 at 10:00 a.m. EST.
Posted By S&P
Standard & Poor's Ratings Services considers May's strong increase in pending sales to be a positive for the housing market and for the underlying collateral performance of U.S. residential mortgage-backed securities. However, the Mortgage Bankers Association's weekly mortgage applications index, which includes purchase and refinance loans, declined a seasonally adjusted 2.7% for the week ended June 24, following a 5.9% decline a week earlier. This was the fourth weekly decline during the past five weeks. The low level of mortgage applications for home purchases mean existing/pending home sales may not improve significantly just yet--even though mortgage rates are at a year-to-date low of 4.46%. This is a negative for the housing market. Overall, we expect home prices to remain weak this year, but mortgage applications, sales, and home prices are likely to improve at least during the summer months.
Highlights Of May Pending Sales
- U.S. pending home sales were up 8.2% based on contracts signed in May after declining 11.3% in April. The year-over-year change in pending sales has been negative since April 2010. However, the current index is 13.4% above the level reported a year ago.
- All regions posted increases in May. Sales in the West increased the most in May, rising 12.9%, and they are 13.5% above May 2010 levels. Sales in the Midwest increased 10.5% in May and are 17.3% above May 2010 levels. Sales in the South increased 4.1% in May, and are up 14.6% year over year. Sales in the Northeast rose 7.3%, and are up 4.4% year over year.
- Pending sales peaked in early 2005 and declined about 30% through May 2011. Overall, the index improved significantly from late 2009 to early 2010, primarily as a result of the now-expired tax incentives.
Pending Home Sales Index - Background
The National Association of Realtors has reported the pending sales of existing homes on a monthly basis for a large national sample since 2001. Pending sales reflect the time when the sale contract has been signed, but the sale has not been completed. As a result, the sales data represents contracts, but not closings. The actual sale usually is finalized within one to two months of contract signings, and as a result pending sales usually lead the existing home sales by one to two months. Pending sales is an index of 100, which is equal to the average level of sale contract activity during 2001. The pending home sales for June will be reported July 28 at 10:00 a.m. EST.
Posted By S&P
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