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Pending Home Sales Index falls largely on mortgage tightening

September 9th, 2007 8:23 AM by Ron Mastrodonato

Pending Home Sales Index falls largely on mortgage tightening

WASHINGTON – Sept. 5, 2007 – Pending home sales, a forward-looking indicator, shows existing-home sales are likely to decline in coming months as mortgage disruptions work their way through the housing market, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index, based on contracts signed in July, fell 12.2 percent to a reading of 89.9 in July from the June index of 102.4, and was 16.1 percent lower than July 2006 when it stood at 107.1.

Lawrence Yun, NAR senior economist, says abnormal factors are clouding the horizon. “It’s difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren’t closing because mortgage commitments have been falling through at the last moment,” he says.

“These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans. Some consumer concerns remain, but since mid-August the market has been stabilizing somewhat.

“If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future, broader stabilization will come sooner rather than later,” Yun says.

The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Annual changes in the index are more closely related to actual market performance than are month-to-month comparisons. As the relatively new index matures and seasonal adjustment factors are refined, the month-to-month comparisons will become more meaningful.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

The PHSI in the South declined 6.6 percent in July to 104.0 and was 15.2 percent below a year ago. In the Northeast, the index fell 12.2 percent from June to 84.3 and is 10.0 percent lower than July 2006. The index in the Midwest dropped 13.1 percent in July to 80.4 and was 15.8 percent below a year ago. In the West, the index fell 20.8 percent in July to 82.3 and was 21.8 percent below July 2006.

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Posted by Ron Mastrodonato on September 9th, 2007 8:23 AM


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