Pending home sales surge in April

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Make it three for three for pending home sales. Sales of pending homes -- sales contracts people have signed for existing homes -- unexpectedly surged 6.7 percent in April to a 4.68-million-unit annual pace, the National Association of Realtors announced Tuesday.

The pending home sales index has risen 3.2 percent since April 2008, with the NAR's pending home sales index now at 90.3. Economists surveyed by Bloomberg News had expected sales of pending homes to total an increase of one-half of one percent (0.005) or increase to a 4.66-million-unit annual pace in April. Pending homes sales totaled a 4.57-million-unit annual pace in March.

Pending home sales: A lead indicator

Investors should follow the NAR's pending home sales statistic because it is leading economic indicator that historically has predicted subsequent increasing (or decreasing) demand in the U.S. economy.

Still, economists caution that pending home sales tend to be subject to revisions, due to the number of home contracts that do not close, as a result of complications -- such as mortgage problems, property issues, or other impediments -- that occur in the six to eight weeks before a home closing, or when a home transaction is finalized. Economists say a more indicative monthly housing statistic is existing home sales, which the NAR announces later in the month.

Celia Chen, an economist at Moody's Economy.com in Pennsylvania, is in the economics camp that argues the record downswing in the U.S. housing sector is coming to an end.

"Home sales and construction activity are probably at the bottom," Chen told Bloomberg News Tuesday. "Home sales are being boosted by foreclosure sales and that's helping to keep activity stable."

Further, NAR Chief Economist Lawrence Yun said the U.S. government's $8,000 tax credit for first-time home buyers is starting to get potential first-time homeowners to commit.

"Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market," Yun said. "Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers."

Economic Analysis: A positive April pending home sales statistic, made all the more pleasant by the fact it continued the favorable pending home sales trend, which now totals three months. Further, it appears lower median home prices and the $8,000 federal income tax credit are affecting sales, but investors should keep this data in perspective. The United States has massive inventories of both new and existing homes -- each housing classification has inventories that are roughly double what a healthy market contains. Hence, the pending home sales trend represents a minor step in what will be a long journey called 'housing sector recovery.'

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