Pending Home Sales Rise in April

June 3, 2009
Matt Isleib

 

The largest monthly jump in over 7 years, those were the April 2009 figures for homebuyers purchasing existing homes. U.S. pending home sales rose 6.7 percent in the month. The last time pending home sales showed such a large increase was October 2001.

The jump in numbers is reflective of several catalysts. For starters mortgage rates have been in the 4’s which is historically low. Combine that with the $8,000 tax incentive for first time home buyers and some drastically reduced home prices due to short sales and foreclosures we have seen an uptick in home sales.

On the surface the numbers are without a doubt encouraging. There are some key hurdles that still need to be jumped. For starters there is typically a one to two month lag between the signing of the purchase contract and closing. Some banks and lenders are taking thirty days or more just too initially approve the loan. So the index is a good indicator of future existing home sales.        

The hurdles that we are going to face are rising interest rates. Last week Eversley Capital Mortgage in Norwalk, CT was quoting mortgage rates near 4.5 percent and today rates are above 5 percent. Average rates today are around 5.25 percent. That does not bode well for future buying activity if the rates do not subside. Unemployment is still climbing and really has no sign of leveling off until early next year. That in turn will continue to increase foreclosure and default rates on existing mortgages which could continue to dampen home values.

The National Association of Realtors index of pending sales contracts has risen three consecutive months in a row now. The Northeast had the largest jump, nearly 33 percent, while the Midwest rose just over 9 percent and the South and West were flat. Obviously there are still some massive bumps in the road yet but if nothing else these numbers give us the reminder that at some point things are going to turn around, it may not be this year as some economists have stated but it will be soon to come.