Slide in Home Sales Not as Bad as It Looks

House for Sale
Source: Thinkstock
The National Association of Realtors (NAR) this morning released its data on pending home sales in February. The index fell 0.4% from a downwardly revised 105.2 in January to 104.8, and it is 8.4% higher than in February 2012 when the index reading was 96.6. The consensus estimate called for a decrease of 0.7% in sales.

The index reflects signed contracts, not sales closings. An index reading of 100 equals the average level of contract signings during 2001.

The NAR’s chief economist noted:

Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels. Most local home builders are small businesses and simply don’t have access to capital on Wall Street. Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market.

Unlike January when pending sales rose in every region of the country, February was a mixed bay. Pending sales rose in the Midwest and West, but only by 0.4% and 0.1% respectively. In the Northeast, pending sales fell 2.5% and sales were off 0.3% in the South.

The NAR blames the lack of inventory for the slowdown in sales and expects to see little change in sales over the next few months.

The news is not as bad as it looks. Conventional sales are replacing sales of distressed properties (foreclosures and short sales), though the short-term effect may be fewer sales overall. New building slowly will replace the distressed properties and the housing market is expected to continue climbing out of its hole.

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