Pending home sales rose strongly in May with all regions experiencing gains from a year ago, according to the National Association of REALTORS®. It is the first time since April 2010 that contract activity was above year-ago levels.
The Pending Home Sales Index rose 8.2 percent to 88.8 in May from an upwardly revised 82.1 in April and is 13.4 percent higher than the 78.3 reading in May 2010. The monthly gain was the strongest increase since last November when the index rose 10.6 percent. The index is a forward-looking indicator that reflects contract signings but not closings, which normally occur with a lag time of one or two months.
Analysts see the rise in the pending home sales index as positive news, since the gains point to higher housing activity in the second half of the year. Lawrence Yun, NAR chief economist, said the improvement bodes well for home prices. "Absorption of inventory is the key to price improvement, and this solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace," he said.
Yun said some markets have made a rapid turnaround, transitioning from soft activity to contract signings rising by more than 30 percent from a year ago. These areas include Hartford, Conn., Indianapolis, Minneapolis, Houston and Seattle.
"Home sales still could be 15 to 20 percent higher," Yun said. "If banks would simply return to normal sound underwriting standards and begin lending to more creditworthy borrowers, we'd get a much faster recovery in the housing sector."
NAR's pending sales report follows that of the California Association of REALTORS® report, which indicated also a rise in pending home sales in the state. Pending home sales in California posted the first year-over-year increase in 18 months, according to C.A.R. The California's Pending Home Sales Index was 118.3 in May, up 1.6 percent from April's index of 116.4. The index was up 12 percent from May 2010.
Yun cautioned that healthy job creation is necessary to ensure a solid recovery in both housing and the overall economy. "The job market has sputtered recently, and because variations in local job creation impact housing demand, markets will recover unevenly around the country," Yun said.
Gene Lentz, president of the Silicon Valley Association of REALTORS®, said the market is performing better in the Silicon Valley region. "For the market to strongly recover, it needs strong job growth and consumer confidence. Fortunately in Silicon Valley, there is a high demand for tech workers, like software engineers, web designers and data analysts. The demand for these workers, along with public offerings by companies, fuels demand for homes in the region."
NAR indicated the PHSI in the Northeast rose 7.3 percent to 69.2 in May and is 4.4 percent above a year ago. In the Midwest the index jumped 10.5 percent to 82.8 and is 17.2 percent higher than May 2010. Pending home sales in the South increased 4.1 percent to an index of 95.0 in May and are 14.6 percent higher than a year ago. In the West the index surged 12.9 percent to 100.6 and is 13.5 percent above May 2010.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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