Winter Storms Dump on Pending Home Sales

The pending home sales index unexpectedly plunged 7.6% in January, the National Association of Realtors announced Thursday, as the winter's severe weather chilled the housing market -- a factor the group said may affect sales in the months ahead, as well.

A Bloomberg News economists' survey had expected the number of contracts for homes would rise 1% in January after a 1% rise December.

In January, pending home sales were down in every region, dropping 8.7% in the Northeast, 8.9% in the Midwest, 2.1% in the South, and plummeting 13.2% in the West.

Compared to a year ago, pending home sales are actually up 12.3%. But this year-over-year gain stems from a very low base, due to the pronounced 2007 to 2009 recession. Such large increases are not hard to achieve given the easy comparisons -- or what economists and analysts call "easy comps."

Potential home buyers should keep in mind that Congress has since renewed and expanded the tax credit to $8,000 for first-time buyers and $6,500 for existing home owners, and purchasers have until April 30, 2010 to take advantage of the program.

Hoping For A Better Spring Season

Lawrence Yun, NAR chief economist, said he expects this winter's severe weather to affect sales. "January pending sales, though still higher than one year ago, remain much lower than expected given that a large number of potential buyers are eligible for the expanded home buyer tax credit," Yun said in a statement. "Moreover, the abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February."

Yun added, "We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June," while noting that the key wild card moving forward is job creation. "If there is sufficient job creation, housing can become self-sustaining," he said.

In general, economists view existing home sales as a more-accurate indicator of housing sector activity than pending home sales, due to the number of pending home sales that fall through as a result of mortgage problems, title issues, liens, and other complications that sometimes prevent signed housing contracts from being finalized.

The bottom line for investors regarding the most recent pending home sales data? January was a disappointing month, although weather undoubtedly prevented some potential purchases. The weather is just one more hurdle for the U.S. housing sector, which has endured such a slump that it will take all the buyer demand it can get -- organic, tax-credit induced, or otherwise -- to get sales back to healthy levels.