Home Sales Fall as Credit Conditions Worsen

By Anuradha Kher, Online News EditorChicago–Pending home sales (including multifamily and single-family homes) in September fell on the heels of a strong gain a month earlier as credit tightened and economic conditions deteriorated, according to the National Association of Realtors (NAR). The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, declined 4.6 percent to 89.2 from an upwardly revised reading of 93.5 in August, but is actually 1.6 percent higher than September 2007 when it stood at 87.8. Lawrence Yun, NAR chief economist, says pending sales have been above year-ago levels for two months in a row. “The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels, it means we’re still in a broad period of stabilization,” he says. “Conditions remain mixed around the country, but markets that are showing annual sales gains include Long Island, N.Y., Boston, Minneapolis, Denver and Washington, D.C., in addition to consistent solid gains in California and Florida.”The PHSI in the West rose 3.7 percent to 113.6 in September and remains 39.5 percent above a year ago. In the Midwest, the index slipped 0.7 percent to 83.3 and is 3.1 percent below September 2007. The index in the South fell 7.9 percent to 89.0 in September and is 11.3 percent below a year ago. In the Northeast, the index dropped 16.8 percent to 66.4 and is 9.4 percent below September 2007. NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., says it’s a challenging time for both buyers and sellers. “Beyond affordable financing, correct pricing and professional expertise are keys to success in the market today,” he says.  Yun projects growth in the U.S. gross domestic product (GDP) to contract in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as home sales recover. “Right now, we’re in a recession and unemployment will increase through 2009,” he says. “Consumer spending has halted and businesses are very cautious of expanding. It is unclear by how much the global economic slowdown will dampen U.S. exports, which had been rising strongly.” New-home sales are likely to total around 487,000 this year and 413,000 in 2009 before rising to 520,000 in 2010. Housing starts, including multifamily units, will probably total 936,000 units in 2008 and 781,000 next year, then increase to 886,000 in 2010.  “Housing construction won’t improve before existing-home sales recover and inventory conditions become more balanced,” Yun says.