Realtors' pending home sales index shows a recovering market

Posted on August 30, 2012

Americans signed the most contracts to buy homes in July than at any other point in the last two years, further evidence of a housing recovery.

The National Association of Realtors said Wednesday that its index of sales agreements for previously occupied homes jumped 2.4% in July to 101.7. That’s higher than June’s reading of 99.3. It’s also the highest reading since April 2010, the last month that buyers could qualify for a federal home-buying tax credit.

A reading of 100 is considered healthy. The index is 12.4% higher than July 2011. It bottomed at 75.88 in June 2010 after the tax credit expired.

Contract signings typically indicate where the housing market is headed. There’s generally a one- to two-month lag between a signed contract and a completed deal.

The Realtors’ group said contract signings increased in July in all regions of the U.S. except for the West, which it said has a severe shortage of available homes for sale.

The increase is the latest sign that the home sales are finally rebounding five years after the housing bubble burst.

Last week, the National Association of Realtors said completed sales of previously occupied homes jumped 10% in July compared with the same month last year. Sales of newly built homes were up 25% in that same 12-month period.

Builder confidence rose this month to its highest level in five years. And the average rate on a 30-year fixed mortgage has been below 4% all year.

Home prices have also started to rise consistently, which could boost sales further in the months to come. The Standard & Poor’s/Case Shiller index released Tuesday showed the first year-over-year increase in home prices since September 2010.

Still, the housing market has a long way to go to reach a full recovery. Some economists forecast that sales of previously occupied homes will rise 8% this year to about 4.6 million. That’s still well below the 5.5 million annual sales pace that is considered healthy.

One trend holding back sales is that inventories of homes are low.

Overall, there were 2.4 million homes for sale in July, down 24% in the past year. It would take about 6.4 months to exhaust that supply at the current sales pace. That’s just above the six months’ inventory that typically exists in a healthy economy.

Marcy Gordon, Detroit Free Press