Pending home sales continue to rise for fifth month

For the fifth month in a row, sales of pending homes -- signed contracts for existing homes -- unexpectedly jumped 3.6 percent in June, the National Association of Realtors announced Tuesday.

Further, the pending home sales index is now up 6.7 percent since June 2008, with the NAR's pending home sales index now at 94.6. The last time pending home sales recorded five consecutive monthly gains was in 2003.

Economists surveyed by Bloomberg News had expected sales of pending homes to total an increase of 0.7 percent in June. Pending home sales increased 0.8 percent in May.

Investors should follow the NAR's pending home sales statistic because it is a 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 complications, 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.

Tax credit deadline approaching

Lawrence Yun, NAR chief economist, made the case for potential home buyers considering their first home purchase to do so in the month ahead, due to the deadline for the $8,000 federal income tax credit.

"Because it may take as long as two months to close on a home after signing a contract, first-time buyers must act fairly soon to take advantage of the $8,000 tax credit because they must close on the sale by November 30," Yun said.

By region, in June pending home sales increased 0.4 percent in the Northeast; rose 0.8 percent in the Midwest; jumped 7.1 percent in the South, and climbed 2.9 percent in the West.

Economic Analysis: The pending home sales data for June was more good news. Moreover, it appears that lower median home prices -- driven lower by foreclosures, real estate investment speculative excesses, and builders' inventory -- and the $8,000 federal income tax credit, are improving sales.

While the NAR's Yun made the case for buying now to take advantage of the $8,000 tax credit, the credit alone should not determine a decision to purchase: as always, the potential home should be the right home for your needs. In addition, although the Obama administration has not signaled whether it will lobby Congress to extend the $8,000 credit beyond November 30, there is a 10-20 percent probability that Congress may do so, if both existing and new home sales remain at low levels.
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