Pending Home Sales Drop in April

The number of people who signed contracts to buy existing homes throughout the country dropped dramatically last month.
man's hand signing a contractThe National Association of REALTORS® has released its Pending Home Sales Index (PHSI), which measures contract signings and not closings, to show that pending U.S. home sales fell 11.6 percent to 81.9 in April from a downwardly revised 92.6 in March.
The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit.
In April 2011, only the Northeast region of the country posted an increase in PHSI:
*Northeast: The index rose 1.7 percent to 64.5 but is 33.4 percent below April 2010
*Midwest: The index fell 10.4 percent to 74.1 and is 30.2 percent below a year ago
*South: The index dropped 17.2 percent 91.3 and is 27.0 percent below the same month last year
*West: The index declined 8.9 percent to 89.1 and is 16.9 percent below April 2010
Experts put some of the blame for the declines on temporary factors, such as unusual weather and economic softness.
“The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,” said Lawrence Yun, NAR chief economist. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.
“Nonetheless, the magnitude of the fall in pending home sales is larger than can be implied by broad economic factors, so we need to see if it’s just a one-month aberration.”
Yun said the main long-term factor holding back a housing recovery is tight credit.
“No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow,” he said. “Lenders and bank regulators need to be mindful of the historically low default rates among mortgage borrowers of the past two years. A robust economic and housing market recovery cannot occur as long as banks continue to hold onto huge cash reserves.
“We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings.
“Even with very favorable affordability conditions, job growth and a pent-up demand from abnormally low household formation during the past three years, the recovery will continue to be uneven and sluggish given the ongoing credit constraints.”