Pending Home Sales Increase Sign Of Bad Times Ahead?
Is there are flip side to the great news about pending home sales?
The number of potential home buyers who signed contracts to purchase existing homes jumped by its largest margin in eight years and rose for the third straight month in April. But watch out below: that could mean banks are ramping up price-destroying foreclosure sales, dropping prices further in upcoming home-price reports.
The pending home sales index rose 6.7% in April from March and 3.2% from a year ago. Pending home sales should predict actual sales about 45 days later, so the existing home sales report for May, to be released at the end of June, will show how many of these pending sales actually close. The two usually track each other fairly closely.
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Sales are up largely on sharply reduced prices from sales of bank-owned foreclosures, which have brought more investors and first-time buyers into the market. But there are two headwinds pushing against this rising affordability: mortgage rates spiked last week, and unemployment continues to creep up.
There’s another reason to dampen some of the enthusiasm that’s likely to come out about these numbers: pending home sales made a similar jump last April, leading to lots of speculation about a bottom in housing.
While that bottom has to be even closer now, a pending home sales jump could mean that future price declines are in store. Why? If the uptick in pending sales has come from banks’ aggressive liquidation of their stock of foreclosed homes, then these homes could be selling for sharply reduced prices. Those numbers would bear out in future home-price indexes in the months ahead, since these will close in the coming weeks.
Source: Blog online.wsj.com
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