Pending Home Sales Unexpectedly Jumped 8.2% in February

Pending Home Sales Unexpectedly Jump 8.2% In February
Pending Home Sales Unexpectedly Jump 8.2% In February

The housing sector showed signs of rebirth in February as pending home sales unexpectedly jumped 8.2%, the National Association of Realtors announced Monday, thanks in part to the federal government's extension and expansion of the home-buyers' tax credit, which lured more people into the market.

Economists surveyed by Bloomberg News had predicted pending home sales would dip 1.0% for the month after a revised 7.8% plunge in January, and a 1% rise in December.

Pending home sales rose in every region except the West in February. Sales were up 9.0% in the Northeast, surged 21.8% in the Midwest, and jumped 9.2% in the South. They fell 4.8% in the West.

Further, pending home sales were up 17.5% compared to February 2009. That contrasts with a 12.3% year-over-year rise recorded in January.

"We Need a Second Surge to Meaningfully Draw Down Inventory"

Congress renewed and expanded the federal home-buyers' tax credit to $8,000 for first-time buyers and $6,500 for others. Buyers have until April 30, 2010, to take advantage of the program.

Lawrence Yun, National Association of Realtors chief economist, categorized the February pending sales improvement as a hopeful sign.

"The rise in buyer contract activity may signal the early stages of a second surge of home sales this spring. The healthy gain hints home prices are continuing to flatten," Yun said in an NAR statement. "We need a second surge to meaningfully draw down inventory and definitively stabilize home values. Anecdotally, we're hearing about a rise of activity in recent weeks with ongoing reports of multiple offers in more markets, so the March data could demonstrate additional improvement from buyers responding to the tax credit."

In general, economists view the existing home sales statistic 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.

Still, investors should interpret February's rise as a pleasant surprise: February's blizzards in the Northeast and Mid-Atlantic regions were expected to drag down pending sales, but the severe weather apparently wasn't enough to keep potential home buyers from taking advantage of the soon-to-expire home-buyer tax credits. However, this is only one month's data: Both home sales and prices could dip again in the months ahead if the U.S. economic expansion stalls.

Moreover, job growth -- a key factor in consumer confidence -- will have a profound influence on the U.S. housing market. A lack of job growth will scare some potential home buyers away from the market. Conversely, sustained job growth should encourage more Americans to take the home-ownership plunge.