Preview: July Pending Home Sales Expected to Retrace from June Bounce

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Pending U.S. home sales in July are expected to have declined from the robust increase seen in June, more or less confirming a "sideways" trend, economists say.

Economists polled by Bloomberg are calling for a monthly decrease of 1.3% in July, following a spike of 5.3% seen in June. Expectations from the 39 economists polled range from -3.5% to growth of 2%.

"We have already seen quite a bounce in the pending home sales data over the last three months, so even if we see some downside correction, as we assume, these figures are confirming a sideways trend," said Mike Englund, analyst at Action Economics. "An actual rise, though, would certainly be a signal that existing home sales are indeed stabilizing along the sideways trend since last October."

The boost in sales last month was largely attributed to a spike in the sale of foreclosed homes and marked the second rebound in the past three months.

Jennifer Lee, economist at BMO Capital Markets, said last month that the surge in sales bodes well for existing home sales for July and August since pending home sales represent homes that have been signed for but not finalized, a process that takes another month or two.

The PHSI now stands at 89.0, up from 84.5 in the previous month. From a year prior, the index has declined by 12.1%, compared with an annual 15.7% decline in the previous month. An all-time low in the seven-year index was reached in March at 83.0.

Economists from JPMorgan said the index has been pointing to stability in existing home sales for the past three quarters, but that month-to-month changes in pending home sales have been "unusually volatile."

They are calling for a 3% decline in the index in July, mostly because of the large 5.3% leap in the previous month.

"The elevated level of mortgage rates also provides a more fundamental case why the pending home sales index might have declined," they wrote in a client note. "So far the jump in mortgage rates that began in late May has not produced any drop in existing home sales."

By Stephen Huebl and edited by Sarah Sussman
©CEP News Ltd. 2008