Pending home sales slip – modest recovery expected in 2011

NEW ORLEANS – Nov. 5, 2010 – Pending home sales retreated after two monthly gains, signaling an uneven recovery entering 2011 with some near-term disruptions from the foreclosure moratorium, according to the National Association of Realtors®. The report was released at the 2010 Realtors® Conference & Expo in New Orleans.

The Pending Home Sales Index (PHSI), a forward-looking indicator, slipped 1.8 percent to 80.9 based on contracts signed in September from an upwardly revised 82.4 in August. However, the index remains 24.9 percent below a surge to 107.8 in September 2009 when first-time buyers were jumping into the market to take advantage of the initial deadline for the tax credit last November. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

“Existing-home sales have shown some improvement, but the foreclosure moratorium is likely to cause some disruption and contribute to an uneven sales performance in the months ahead,” says Lawrence Yun, NAR chief economist. “Nonetheless, there appears to be a pent-up demand that eventually will be unleashed as banks resolve their issues with foreclosures and the labor market improves. However, tight credit and appraisals coming in below a negotiated price continue to constrain the market.”

The PHSI in the Northeast slipped 1.7 percent to 59.6 in September and is 28.3 percent below a year ago. In the Midwest, the index fell 5.7 percent in September to 64.2 and remains 33.0 percent below September 2009.

Pending home sales in the South declined 3.5 percent to an index of 87.6 and are 19.1 percent below a year ago. In the West, the index rose 3.5 percent to 104.6 but is 24.7 percent below September 2009.

In examining the underlying fundamentals, Yun expects the Gross Domestic Product to grow 2.0 to 2.5 percent over the next two years. With a projection of 1.5 million additional jobs over the next two years, the unemployment rate should decline to 8 percent by 2013 and return to a normal level around 6 percent in 2015.

“Mortgage interest rates currently are bouncing along the bottom, but are expected to gradually rise and average 4.9 percent next year, then rise to 5.8 percent in 2012,” Yun says.

Existing-home sales are forecast to gradually rise, with some occasional dips along the way. “For 2011 we should see more than 5.1 million existing-home sales, up from about 4.8 million this year,” says Yun. “Housing starts are expected to rise to 716,000 in 2011 from 598,000 this year. We’ve added 30 million people to the U.S. population over the past 10 years, but sales are where they were in 2000, so there appears to be a sizable pent-up demand that could come to the market once the economy gathers momentum.”