Home Purchase Contracts Down for April

The National Association of Realtors reported that pending homes sales are down for the month of April. This organization and others use many indicators to track national home …

The National Association of Realtors reported that pending homes sales are down for the month of April. This organization and others use many indicators to track national home sales in addition to measuring actual closings. Pending homes sales for April, which economists expected to fall 1% from last year, fell 11.6% for the month. This combined with a drop in housing starts as well as building permits have investors backing off of investments tied to homebuilding and the housing market, despite a 7.3% increase in new home sales for the month. For more on this continue reading the following article from The Street.

Pending home sales plunged 11.6% in April, according to a National Association of Realtors report released Friday morning.

The index, which measures the number of contracts signed to buy previously owned homes in the U.S., plunged 11.6% in April, month-over-month, to a reading of 81.9, from a downwardly revised reading of 92.6 in March. The figure remained 26.5% below the cyclical peak of 111.5 in April 2010 when buyers were rushing to take advantage of federal tax credits for homebuyers.

Economists had expected the figure to fall 1%.

Pending home sales are viewed as an indicator of future home sales since they reflect contracts — not closings — and generally occur with a lag time of one to two months.

The housing sector is well off its late-spring peak, ahead of expiring tax credits, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

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The SPDR S&P Homebuilders(XHB), an exchange-traded fund that tracks the homebuilder sector, remains around 60% off its peak of $46.08 in early 2006. The iShares Dow Jones U.S. Home Construction(ITB) ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

The ETFs were each 0.6% higher Friday morning.

Homebuilder stocks were mostly higher Friday morning.

PulteGroup(PHM) rose 0.7%, D.R. Horton(DHI) gained 1.1%, Lennar(LEN) jumped 1.9% and KB Home(KBH) added 0.9%. Toll Brothers(TOL) and small-cap builder Hovnanian Enterprises(HOV) were 0.9% and 1.5% higher, respectively.

Weyerhaeuser(WY) bucked the trend, falling 4.3%, after analysts at Deutsche Bank downgraded the stock to a sell rating with a price target of $19.

Data released on Tuesday showed that sales of newly built homes rose 7.3% in April to a seasonally adjusted annual rate of 323,000, a bigger jump than expected.

The Commerce Department report noted that April’s new-home sales figure remained 23.1% below year-earlier levels, when buyers rushed to take advantage of federal tax credits for homebuyers.

Data released last week showed that April housing starts dropped 10.6% while construction permits fell 4%. The figures were discouraging since building permits are viewed as an indication of future home construction.

The National Association of Home Builders’ index of builder sentiment came in flat in May, despite a rise in home sales, as interest among potential buyers remained sluggish.

The NAHB’s confidence index, which measures builder perceptions of current single-family home sales and sales expectations for the next six months, held steady at a reading of 16, according to the report. Any reading below 50 indicates poor sentiment. The index has not been above 50 since April 2006.

“Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. “In addition, many builders in this month’s survey cited high gas prices as a further contributor to consumer anxiety and reluctance to go forward with a home purchase.”

This article was republished with permission from The Street.

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