Pending Home Sales Drop as Expected

Following a surge driven by the home buyer tax credit, pending home sales fell with the expiration of the deadline for qualified buyers to sign a purchase contract, according to the NATIONAL ASSOCIATION OF REALTORS®.

The Pending Home Sales Index, a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April, and is 15.9 percent below May 2009 when it was 92.3. The falloff comes on the heels of three strong monthly gains as home buyers rushed to take advantage of the tax credit.

Yun noted the tax credit has broadly stabilized home prices. “Without the tax credit, there will be more aggressive price negotiations between buyers and sellers. The key test on whether the housing market can stand on its own without stimulus medicine will depend critically on private sector job creation in the second half of the year. We’ll also keep a close eye on market conditions on the Gulf Coast.”

Through May of this year 495,000 net private sector jobs have been created; NAR’s forecast for employment growth is about 1 million additional net new jobs over the balance of the year and another 2 million in 2011.

“If jobs come back as expected, the pace of home sales should pick up later this year and reach a sustainable level of activity given very favorable affordability conditions,” Yun said.

“In most areas of the country there will be no sharp snap back in home prices in the upcoming years, although some local markets have experienced double-digit gains this year,” Yun said. NAR forecasts the national median home price to rise only 4 percent cumulatively over the next two years.

“One factor that could lead to price acceleration in upcoming years for some markets is if the very low levels of new-home construction were to persist for another year or two,” he added.