Pending Home Sales Index Fell 7.0% in July, NAR Reports

A gauge for future home demand fell sharply during July, the largest monthly drop since the index was created, indicating that the rate of home sales will be leveling out a lower pace in the months ahead.
By: Benton Ives-Halperin: The Wall Street Journal Online
The National Association of Realtors' index for pending sales of existing homes decreased at a seasonally adjusted annual rate of 7.0% to 105.6 from June's 113.5, the industry group said Friday.

July's index level is the lowest since February 2003, when it was 99.3.

And July's index reading was 16.0% below the level of July 2005.

David Lereah, NAR's chief economist, said the year-to-year numbers have been a good predictor of the actual pace of home sales.

"Based on recent changes from a year ago, the index shows existing-home sales should continue to ease after a stronger-than-expected decline in July, but are likely to flatten in the months ahead," Lereah said in a statement.

By region, the index showed a 7.7% drop in the Northeast in July from June - and a 15.5% decrease since July 2005.

In the West, the index dropped 5.5% in July and 20.3% below a year prior.

The South fell 6.4% in July and was 11.3% below July 2005. The Midwest decreased 9.0% in July and was 20.1% below the level a year earlier.

Lereah attributed much of the drop in the July index to "psychological factors."

"We've never seen a general decline in the housing market against a healthy economic backdrop where jobs are being created, the economy is growing and interest rates are favorable," he said.

"Psychological factors are causing some buyers to remain on the sidelines, waiting for prices to stabilize or for more favorable news about the market and the economy...in the end we believe that underlying market fundamentals will prevail," Lereah added.

The NAR's pending home sales index was designed to try measuring the direction of the housing market in the future. It is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction has not closed. Pending sales typically close within one or two months of signing.