July Pending Home Sales Increased as Closing Deadline Extended
The pending sales of previously owned homes unexpectedly rose 5.2% in July -- an increase that may be a sign of housing sector stabilization or may merely reflect an elongated impact of the home-buyer tax credit, due to an extended closing deadline.
Congress extended the home closing deadline to Sept. 30, 2010 from June 30, 2010. That means those who purchased homes by the home-buyer tax credit deadline of April 30 have three additional months to close on the transaction. This move may have "elongated" or drawn-out the stimulus effect, in this case pushing July's pending sales total higher.
A Bloomberg survey had expected pending sales of homes to dip 1% in July after falling 2.6% in June. Pending home sales are now 19.1% lower than a year ago, in July 2009.
Pending home resales increased in every region in July, rising 6.3% in the Northeast, 4.1% in the Midwest, 1.2% in the South, and 11.6% in the West.
Despite July's pending sales rise, Lawrence Yun, chief economist with the National Association of Realtors, cautioned that the U.S. housing sector's recovery would be a long process.
"Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery," Yun said in a statement. "But the recovery looks to be a long process. Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers."
In general, economists view new and existing home sales statistics as more-accurate indicators of housing sector activity than pending home sales, due to the number of pending 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.
July's pending sales rise does not blot out the fact that both new and existing home sales declined this summer -- trends that indicate the housing market retrenched, following the end of the home-buyer tax credit. Further, that sales decline has swelled inventories to very high levels: a 9.1-month supply of new homes and a 12.5-month supply of existing homes, at their respective, current sales paces. A normal, healthy home sale market has a roughly three- to five-month supply of each. The U.S. economy will have to register impressive job growth over many quarters to return home inventories to normal levels.