Pending Home Sales Rise Unexpectedly

Lower prices and foreclosures push sales figures higher.

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The National Association of Realtors on Wednesday released its pending home sales report for August:

From NAR:

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in August, jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4...

The PHSI in the West surged 18.4 percent to 109.5 in August and remains 37.8 percent above a year ago. In the Northeast the index jumped 8.4 percent to 79.8 and is 2.0 percent higher than August 2007. The index in the Midwest rose 3.6 percent to 84.5 in August and is 6.6 percent above a year ago. In the South, the index increased 2.3 percent to 96.0 but is 2.1 percent below August 2007.

Here's what Joseph Brusuelas, chief economist at Merk Investments, had to say about the report in one of his own:

Pending home sales for the month of August unexpectedly increased by 7.4% on the back of an improving rate environment, declining prices and robust sales of foreclosed homes . . . Under normal circumstances, a strong move to the upside in pending sales would suggest improvement [in] the purchase of existing and new homes over the next 60 days. In particular, the unexpected increase if it were to be sustained, could begin to burn off the outsized inventory in both the new and existing housing stock.

However, due to the intensification of the credit crisis over the past few weeks, the probability that [the] situation in the residential market will deteriorate has increased. Given the expected increase in unemployment that we expect to see over the next year, it will be difficult for the residential market to see a move to the upside in the near term. It is indeed unfortunate that just as prices, rates and overall levels of affordability begin moving in a positive direction, that the current difficulties in the credit market will in all probability act as a negative counterweight to the recent improvements in affordability.