There was some unexpected positive news on the housing front today: pending home sales rose in April 2008 to the highest level since October 2007, according to the National Association of Realtors (NAR).
NAR complies a monthly “Pending Home Sales Index” (PHSI), which tracks housing contract activity based on signed real estate contracts for existing single-family homes, condos and co-ops. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The PHSI gives figures for the nation and four regions, and includes seasonally adjusted as well as not seasonally adjusted figures.
A reading of 100 on the PSHI is equal to the average level of sales activity in 2001.
April’s PHSI figures show that the seasonally adjusted index of pending sales for existing homes across the nation rose to 88.2 percent from a March reading of 83.0 percent.
March’s figure of 83.0 percent was the lowest since the index was started in 2001.
Moreover, the April 2008 figure of 88.2 percent is still 13 percent below April 2007’s reading of 101.5 percent.
Some regions fared much better than others.
The region that did best was the West — with a seasonally adjusted figure of 98.8, its highest level since June 2007. The West also showed an 8.3 percent increase from last month and a 4.0 percent increase from 95.0 percent a year ago.
The Midwest — at a seasonally adjusted rate of 83.7 percent — posted a 13.0 percent increase from last month, but a 13.1 percent drop from last year’s figure of 96.4 percent.
The South — at a seasonally adjusted rate of 88.8 percent — showed a moderate 4.6 percent increase over last month, but that was still a stunning 22.5 percent decline from last year’s figure of 114.6 percent.
The worst region in regard to pending home sales was the Northeast — with a seasonally adjusted rate of 79.3 percent — which indicated both a monthly decline ( -1.9 percent) and a sharp decline (-12.2 percent) from 101.5 percent a year ago.
As usual, NAR strained to see these very modest national gains in the most positive light, claiming that they show that “the underlying fundamentals point to a pent-up demand.”
NAR chief economist Lawrence Yun again predicted that an upturn in the housing market is just around the corner.
“Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” Yun said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely.”
Other analysts are not nearly as optimistic about the meaning of the PHSI figures.
They point out that banks are dumping properties at fire-sale prices, and that inventories will continue to grow as foreclosures continue to rise. NAR’s PHSI does not differentiate between full-market sales, short-sales, and foreclosures.
Even NAR’s economist Lawrence Yun acknowledges that much of the increase in pending home sales comes from “bargain hunters” who have “entered the market en mass.”
The New York Times reports that Mark Zandi, the chief economist for Moody’s economy.com, believes that April 2008 marks the bottom for home sales, but he also believes that home prices won’t bottom out for another year. ”It’s the beginning of the end of the housing downturn, but it will be a long painful ending,” he said.
We think that Zandi is being overly optimistic — when the housing downturn ends depends on many factors, including straightening out the mortgage and credit industries, that are still a very long way off.