Pending Home Sales Rise Points to Improving Economy, Economist Says

Washington, D.C.—The rise in pending home sales in February is largely due to slow but steady improvement in the U.S. economy, as well as the short-term impetus that the first-time homebuyer tax credit is providing, Jed Smith, managing director of quantitative research for the National Association of Realtors (NAR), tells MHN.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, rose 8.2 percent to 97.6 from a downwardly revised 90.2 in January, and remains 17.3 percent above February 2009, when it was 83.2 percent. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.

“This is an indication of a slow but continued economic recovery, as well as help provided by the tax credit,” Smith says.

Based on historical data, Smith believes the sales numbers will continue to improve over the next few months, and will be helped by low interest rates.

“Rates have increased in the last couple of weeks, but they are still quite conducive to home sales,” Smith says. Historically, about 5.2 million existing homes are sold in the U.S. each year, Smith says, and if February’s sales are extrapolated to the end of this year, there will be just over 5 million sold this year. That’s a major increase from a year ago, when the monthly number pointed to yearly sales in the 4.7 million range, he says.

The Pending Home Sales Index in the Northeast rose 9 percent to 77.7 in February and is 18.9 percent higher than February of last year. In the Midwest, the index jumped 21.8 percent to 97.9 and is 18.7 percent above a year ago. Pending home sales in the South increased 9.2 percent, to an index of 107, with the index 17.5 percent above last February. The West saw the only drop, as the index fell 4.8 percent to 98, but is still 14 percent above a year ago.

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.