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2007-09-05 19:50:00

Pending Home Sales Index Falls Largely on Mortgage Tightening

Washington, DC, Sept.05, 2007 -- Pending home sales, a forward-looking indicator, shows existing-home sales are likely to decline in coming months as mortgage disruptions work their way through the housing market, according to the National Assn. of REALTORS.

The Pending Home Sales Index*, based on contracts signed in July, fell 12.2% to a reading of 89.9 in July from the June index of 102.4, and was 16.1% lower than July 2006 when it stood at 107.1.

Lawrence Yun, NAR senior economist, said abnormal factors are clouding the horizon.  “It’s difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren’t closing because mortgage commitments have been falling through at the last moment,” he said. 

“These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans.  Some consumer concerns remain, but since mid-August the market has been stabilizing somewhat. 

“If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future, broader stabilization will come sooner rather than later,” Yun said.

The index is a leading indicator for the housing sector, based on pending sales of existing homes.  A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Annual changes in the index are more closely related to actual market performance than are month-to-month comparisons.  As the relatively new index matures and seasonal adjustment factors are refined, the month-to-month comparisons will become more meaningful.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

The PHSI in the South declined 6.6% in July to 104.0 and was 15.2% below a year ago.  In the Northeast, the index fell 12.2% from June to 84.3 and is 10.0% lower than July 2006. The index in the Midwest dropped 13.1% in July to 80.4 and was 15.8% below a year ago.  In the West, the index fell 20.8% in July to 82.3 and was 21.8% below July 2006. 

The National Association of REALTORS, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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* The Pending Home Sales Index is based on a large national sample, typically representing about 20% of transactions for existing-home sales.  In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months.  There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

The forecast will be revised September 11, and existing-home sales for August will be released September 25.  The next Pending Home Sales Index will be on October 2.

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