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US residential property market sales slower than expected, latest data shows

The NAR Pending Home Sales Index, a forward looking indicator based on contract signings, dropped 11.6% to 81.9 in April from a downwardly revised 92.6 in March. The index is 26.5% 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.

The data reflects contracts but not closings, which normally occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, said the dip in contracts may be due to temporary factors. ‘The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months. 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,’ he explained.

Yun noted that the growth in retail sales slowed measurably in April, while sales at furniture and home furnishing stores declined sharply. ‘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,’ he added.

Yun said tight credit is the primary long term factor holding back the market. ‘No doubt the continuing excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow. 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,’ Yun added.

The PHSI in the Northeast rose 1.7% to 64.5 in April but is 33.4% below a year ago. In the Midwest the index fell 10.4% to 74.1 and is 30.2% below April 2010. Pending home sales in the South dropped 17.2% to an index of 91.3 in April and are 27% below a year ago. In the West the index declined 8.9% to 89.1 and is 16.9% below April 2010.

‘Even with very favourable 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,’ Yun said.