Economy Watch: Pending Home Sales Spike in May

By Dees Stribling, Contributing Editor

Pending U.S. home sales rose sharply in May, with lower mortgage rates and increased inventory accelerating the market, according to the National Association of Realtors on Monday. The organization’s Pending Home Sales Index, which is based on contracts signed but not closed, increased to 103.9 in May from 97.9 in April. It remains below the May 2013 reading of 109.6.

May’s increase was the largest month-over-month gain since April 2010, when first-time homebuyers were eager to sign purchase contracts before the first-time homebuyers tax credit program ended. Even so, the number of pending sales reflects an imbalance in the market, with sales still skewed toward more expensive properties. The strong equities markets of recent years has driven sales in the higher price brackets, while sales for homes under $250,000 are about 10 percent behind last year’s pace.

NAR chief economist Lawrence Yun says he expects improving home sales in the second half of the year. “Sales should exceed an annual pace of 5 million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation,” he notes. “However, second-half sales growth won’t be enough to compensate for the sluggish first quarter and will likely fall below last year’s total.”

Fannie Mae delinquencies continue to fall

Fannie Mae reported on Monday that its single-family serious delinquency rate dropped in May to 2.08 percent, compared with 2.13 percent in April. In May 2013, the serious delinquency rates was 2.83 percent, and the current rate is the lowest one since October 2008, when delinquencies were headed up with great dispatch, ultimately peaking at 5.59 percent in early 2010.

The continuing downward drift of Fannie Mae’s delinquency rate mirrors that of Freddie Mac, which the GSE reported last week. Freddie’s rate is now 2.15 percent, down from 2.85 percent a year ago. According to both companies, serious delinquency includes both mortgages three months or more overdue, and those in foreclosure.

Historically, serious delinquencies for mortgages owned or insured by the GSEs is about 1 percent. At the current rate of contraction, it will take until around the end of 2015 for serious delinquencies to drop to that rate.

Texas sees manufacturing expansion

The Federal Reserve Bank of Dallas reported on Monday that Texas factory activity increased again in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 11 to 15.5, indicating output grew at a faster pace than in May. Texas is a major manufacturing region, and the Texas survey of a series of monthly manufacturing reports by Federal Reserve branches.

Wall Street ended the day mixed on Monday. The Dow Jones Industrial Average was down 25.24 points, or 0.15 percent, while the S&P 500 was off a scant 0.04 percent. The Nasdaq was up 0.23 percent.