The National Association of Realtors said Tuesday its seasonally adjusted index of sales contracts signed in April surged 6.7 percent to 90.3, far exceeding analysts' forecasts. It was the biggest monthly jump since October 2001, when pending sales rose 9.2 percent.
The big boost likely reflects the impact of a new $8,000 tax credit for first-time homebuyers that was included in the economic stimulus bill signed by Obama in February. Since buyers need to complete their purchases by Nov. 30 to claim the credit, "we expect greater activity in the months ahead," Lawrence Yun, the Realtors' chief economist, said in a statement.
Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future existing home sales.
While economists are encouraged by signs that demand for housing is returning, the outlook is far from sunny. Mortgage rates are rising, making homes less affordable for many borrowers. The average rate for a 30-year, fixed-rate mortgage is around 5.3 percent this week compared with about 5 percent last week, according to Bankrate.com.
Stock indexes advanced modestly in morning trading, but then traded in a tight range around the break-even point. Financial stocks fell after several banks announced plans to raise capital to help repay federal bailout funds.
The health of the U.S. housing market, mired in a three-year slump, is one of the key issues facing the economy. Though sales may be recovering, analysts cautioned that prices will take longer to stabilize because of the glut of unsold properties for sale.
Prices are unlikely to rise until foreclosures start declining, and that's unlikely to happen before the end next year.
The national median sales price in April plunged more than 15 percent from year-ago levels to $170,200, driven by sales of inexpensive foreclosures and other distressed low-end properties. That was the second-largest yearly price drop on record, according to the Realtors' group.
Still unknown is the effectiveness of President Barack Obama's $50 billion plan to prevent foreclosures by modifying loans in bulk. Analysts are growing worried that it will not have a substantial impact.
"I haven't seen evidence yet of any significant modifications," said Mark Zandi, chief economist at Moody's Economy.com. "I was hoping that we would see more of a pickup."
The Realtors' index of pending sales contracts was 3.2 percent above last year's levels and has risen for three straight months after hitting a record low in January. A nearly 33 percent sales increase in the Northeast and a 9.8 percent jump in the Midwest led the overall surge. Sales contracts were flat or up slightly in the South and West.
Still, Yun cautioned that the pending sales data is more volatile than in the past. Many homeowners need to sell their properties for less than the balance they owe on their mortgages - a so-called "short sale" - which requires the lenders' approval. That process is often difficult, time-consuming and can fall apart before the deal closes.
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