Gain in Pending Home Sales Suggests Stabilization
The Pending Home Sales Index rose more than expected with a 3.2% advance in March, against forecasts that it would be unchanged after a revised 2.0% gain in February. The index now stands at 84.6.
Annually, pending sales have risen 1.1% since March 2008.
The index, released by the National Association of Realtors, gives some hope that the housing market may be stabilizing, and NAR chief economist Lawrence Yun said momentum could build up in the coming months.
“We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around,” he said.
Yun added that first-time buyers are responding favorably to an $8,000 tax credit, adding that affordability conditions remain near record highs.
The affordability index ― which measures the relationship between home prices, mortgage interest rates, and family income ― moved down slightly to 166.7 in March, but it remains nearly 31% higher than one year ago.
Economics strategist Ian Pollick from TD Securities attributed the gain to "the dramatic retreat in mortgage rates." He called the report "encouraging," but expressed caution going forward.
"As long as the U.S. labor market continues to wane, and as long as overall economic activity remains sparse, the necessary conditions for a housing market revitalization will not occur," Pollick said.
Charles McMillan, president of the NAR, said the housing market is favorable to buyers who have been waiting on the sidelines for prices to deflate. “Homeownership has always offered immediate benefits and long-term value, but the advantages in today’s market are unique,” he said.
Results were not positive across the board, however. Pending sales in the South rose 8.5% to 93.2 in March, and in the West the index advanced 3.9% to 93.1. By contrast, sales in the Northeast fell 5.7% to 59.5, while in the Midwest the index dropped 1.0% to 82.3.
Pending sales are a forward-looking indicator based on contracts that have been signed but not finalized. The indicator forecasts existing home sales, which represent the majority of the housing market, for the following month.
Also released at 10 am was the construction spending report from the Commerce Department, which unexpectedly rose for the first time in six months.
Construction spending in March was estimated at an annual rate of $969.7 billion, a figure 0.3% above the revised estimate from February. Compared to last year though, construction spending has plummeted 11.1% from the March 2008 estimate of $1,090.5 billion.
Public spending on construction improved from the February estimate, but spending fell in the private sector. The estimate for annual public construction spending was $308.7 billion, a 1.1% higher estimate than in February, while private spending was estimated at $661.0 billion, a 0.1% lower estimate than one month before.