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October Pending Home Sales Up Significantly

In what might finally be a sign that home sales are poised for a turnaround, NAR’s forward-looking pending home sales index jumped 10.4 percent in October from the previous month and is also up significantly on a year-over-year basis. Although it’s too soon to tell whether the gain will be sustained, there are trends berewing in the market that suggest it will be.

For one thing, rental rates are increasing. Historically, there’s typically been a strong correlation between rising rental rates and rising home prices. That relationship has broken down in the past few years because of the severity of the downturn in the housing market. But with rental rates now well into long-term gains, pressure is mounting for renters to jump to home ownership if only because it’s becoming cheaper to buy than to rent in a lot of markets and at a lot of price points. Of course, the hurdles to obtaining financing remain a big stumbling block, and in fact that might be a good part of the reason there’s been so much divergence between NAR’s pending sales index and actual closings.

We’ve been seeing that divergence for the last couple of years. Pending home sales will go up but actual closings won’t follow suit as closely as they have in the past. We can’t know all the reasons for this, but NAR surveys of its members have suggested that agents are seeing a lot of closings collapse because buyers can’t get financing.

In the 4-minute video above, NAR Chief Economist Lawrence Yun talks about the latest pending sales figures and what might be coming down the road, in part because of rising rental rates.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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Comments
  1. We are starting to see where it costs less to buy than to rent in many areas of the country. When I speak to agents in other states, this is becoming more and more true. What will happen is investors will pick up more properties and a bottom in the down-trend will be in place.

  2. It’s nice to hear some good news. With the better than expected employment report yesterday maybe the public will start getting some confidence and start buying homes again.

  3. Charles from The Outer Banks

    It was reported today that the NAR home figures have been overstated by 20% going back to 2007 and that all figures are going to be readjusted. So is this figure one overstated by 20% as well?

  4. Robert Freedman

    Thanks very much for your question. You’re referring to a rebenchmarking NAR does roughly every 10 years, and the next rebenchmarking will be released next week. What NAR does to help ensure its home sale figures remain accurate is it creates a new baseline of sales using U.S. Census figures and then adjusts its up or down monthly percentage changes, which are based on a sample of MLS data, according to that new baseline. Such adjustments are a part of all data sets, including U.S. GDP figures and U.S. unemployment figures. Let me direct you to a post and video we did earlier this year in which NAR Chief Economist Lawrence Yun explains the upcoming rebenchmarking.

    http://speakingofrealestate.blogs.realtor.org/2011/02/24/how-nar-calculates-existing-home-sales/

    Thanks again for your question.
    Best,
    Robert Freedman

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