Pending Home Sales Increase May Signal Growing Confidence in Economy

Washington, D.C.–The rise in pending single-family home sales for three consecutive months certainly has been driven by the now-expired first time homebuyer tax credit, but low mortgage rates and greater consumer confidence are other likely contributors to the improving picture.

The Pending Home Sales Index, a forward-looking indicator, rose 6 percent to 110.9, based on contracts signed in April, from an upwardly revised 106.4 in March, according to the National Association of Realtors. That follows gains of 7.1 percent in March, and 8.3 percent in February.

Pending home sales are at the highest level since last October, when the index reached 112.4, a number that reflected the number of first-time buyers rushing to beat the deadline for the tax credit. The data reflects contracts and not closings, which usually occur with a time lag of one or two months.

While the pending home sales figures were obviously boosted because of buyers racing to meet the deadline for the expiring tax credit, Paul Bishop, vice president of research for the National Association of Realtors, also credited low interest rates, more reasonable home prices, and greater consumer confidence for the increase, and noted those factors should continue to benefit the housing industry.

The U.S. economy has been adding jobs in recent months, and that is likely making those who have jobs more confident about their economic prospects, Bishop says, although he acknowledged that high unemployment still persists in many metro areas.

“That’s a problem that is likely to persist for a while,” he says. The National Association of Realtors expects a net of 1 million additional jobs in the second half of the year, and about 2 million in 2011. Economists expect tomorrow’s jobs report from the Department of Labor to say that the economy added 500,000 jobs in May.

Although the National Association of Retailers’ report measured single-family pending home sales, Bishop says a strong single-family housing market is the hallmark of a strong economy, which will benefit the multifamily sector.