Pending real estate sales drop for third month

January 5, 2006

'High plateau' expected for housing in 2006

Inman News

Pending home sales slowed for the third straight month in November, demonstrating "that a market transition is firmly in place," the National Association of Realtors reported today.

The Realtor trade group's Pending Home Sales Index, which is based on contracts signed in November, dropped 2.5 percent to a reading of 120.6 from 123.7 in October, and is 2.5 percent lower than November 2004. After climbing to 129.2 in August, the index has dropped every month since.

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed; pending home sales typically are finalized within one or two months of signing, the association noted.

David Lereah, NAR's chief economist, said in a statement, "Although pending home sales are trending down from a record in August, the index remains well above a mark that is considered to be historically strong." An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing-home sales.

"We are clearly experiencing a market transition, moving from a prolonged boom to a more balanced period of sustainable sales," Lereah said. "Home sales have been peaking for the last five years and we will land on a high plateau in 2006 – a market that will be healthy for both buyers and sellers. Investment fundamentals for housing remain solid, preserving generally favorable affordability conditions while offering solid returns as well as a place to live."

Regionally, the index rose 3.4 percent in the Midwest in November to 116, which was 3.7 percent lower than in November 2004. In the South, the index declined 1.9 percent to 132.8 in November and was 1.8 percent above a year ago. The index in the West fell 5.1 percent to 127.7 in November, and was 4.6 percent lower than a year ago. The index in the Northeast was down 8.3 percent to a level of 93.3, and was 8.0 below November 2004, the association reported.

The Pending Home Sales Index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 closely parallels the level of closed existing-home sales in the following two months, according to the association.

Copyright 2006 Innam News

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