New pending home sales data for May indicate that April’s 11.2% plunge was a one-month fluke likely caused by the onset of higher gas prices and a struggling job market. The 8.2% increase reported by the National Association of Realtors marks the largest spike since November 2010, with Indianapolis, Seattle, Houston and a few other markets seeing significant turnarounds. A Barclays report suggests this is a sign to expect a housing market rebound, but other analysts say a better indicator of sustained improvement are lower delinquency rates that lead to foreclosures. For more on this continue reading the following article from The Street.
Home sales saw a promising turnaround in May.
The National Association of Realtors reported that pending home sales jumped 8.2%. The index, which looks at homes in the process of closing, rose to an 88.8 reading in May from a revised 82.1 reading in April.
The turnaround was a relief after an 11.6% plunge in April. Analysts had expected a tick up by 2% for May, according to Briefing.com.
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Home sales fell in April as the U.S. economy hit a soft patch due to rising gas prices, bad weather conditions and a poor jobs market. Today’s number confirmed that the disappointing drop in April was likely a one-month aberration. While home sale numbers have been uneven in the last months, the trend has been upwards since sales bottomed out in June 2010.
The jump in May was the largest increase since November 2010. Some areas saw the number of home sale contracts increase by more than 30% from a year ago. Hartford, Indianapolis, Minneapolis, Houston and Seattle were some of the cities that saw a particularly quick turnaround since last year.
"The strong increase likely reflects the reversal of the effects of adverse weather in many parts of the country that sent the index of pending home sales 11.2% lower in April," said a Barclays research report. "Existing home sales should rebound in the coming months, as pending sales normally transition to sales with a lag of one to two months."
"Home sales still could be 15% to 20% higher," said NAR’s chief economist Lawrence Yun in a written statement. "If banks would simply return to normal sound underwriting standards and begin lending to more creditworthy borrowers, we’d get a much faster recovery in the housing sector."
Francisco Torralba, an economist with Morningstar Investment Management, took a more cautious view. "The key number to watch for a recovery in the housing market is the delinquency rate," said Torralba. The delinquency rate, which is a leading indicator of the number of foreclosures, has been coming down, with the exception of a pause in the first quarter this year. However, Torralba says that the foreclosure rate has yet to come down.
This article was republished with permission from The Street.