The National Association of Realtors (NAR) said Tuesday that the Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in September, made an unexpected jump of 0.2 percent to a reading of 85.7 from an index of 85.5 in August. Lawrence Yun, NAR chief economist, also unveiled the NAR's 2008 existing home sales forecast, which is calling for a mild recovery of existing-home sales.

The NAR predicts 5.69 million sales of existing homes next year, up slightly from the 5.67 million expected by the end of this year. The median price should decline 1.7 percent to $218,200 this year and then hold steady in 2008. Yun says improving conditions in the housing sector will lead to a "modest" boost in sales.

"The level of pent-up demand reaching the market next year is a bit uncertain, and it is possible for even higher home sales activity than we're forecasting if buyers regain their confidence about the long-term benefits of homeownership," Yun said at the National Association of Realtors Conference and Expo in Las Vegas. "Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year."

"Some markets are still going strong," Yun continues, "such as Austin and Raleigh, while others are showing early signs of recovery, like Denver and Boston. However, a vast portion of the nation's mid-section is under-priced in relation to income, and prices in some markets could rise notably with good local job gains. At the same time, a significant rise in foreclosures in some areas could delay the recovery."

Patrick Newport, an economist for Global Insight, a Massachusetts-based economic and financial analysis firm, says the NAR's forecast may be a little too hopeful due to its target audience.

"Their forecasts tend to be overly optimistic, which is understandable because their economist represents a group that doesn't want to hear anything bad because that [affects] their livelihood," Newport told BUILDER Online. He adds that he expects both the existing- and new-home sales markets to turn around in the middle of 2008. "But between now and then, sales are going to drop at least another 10 percent. We still have quite a bit farther to fall."

"We've seen ugly numbers so far [this year] - and we're going to see more until the end of the year," Newport says. He adds that Countrywide Financial's Tuesday report of a near 50-percent decline in monthly mortgage volume from October 2006 is a better forward-looking indicator than the NAR's PHSI this month.

According to Yun, the September PHSI results, which are 20.4 percent lower than the September 2006 level of 107.6, are deceptive. "Even with relatively low fourth quarter sales, 2007 will be the fifth highest year on record for existing-home sales," Yun explained. "The median existing-home price in 2007 will have fallen by less than 2 percent from an all-time high set in 2006."

Carl Reichardt, of Wachovia Capital Markets, doesn't see a silver lining in the NAR's latest PHSI and says he is wary of even calling the data "a sign of potential stabilization."

"The data was released approximately two weeks later than usual and therefore represents signed contracts which took place as far back as two and half months," Reichardt said in a note. "Based on the commentary we have heard from the public homebuilders, we believe conditions in the new home market deteriorated further in October as compared to September.

"Furthermore," Reichardt added, "in our October "Neighborhood Watch" survey in which we ask 150 sales managers across the country about selling conditions, an often cited reason for weak demand was the inability of a buyer to sell an existing home."

The September PHSI in the Midwest rose 5.4 percent in September to 82.3 but is 14.4 percent below a year ago. In the South, the index increased 1.5 percent to 99.3 but is 19.7 percent lower than September 2006. The index in the West slipped 0.1 percent in September to 80.5 and is 25.6 percent below a year ago. And, in the Northeast, the index dropped 10.1 percent in September to 69.5 and is 23.1 percent below September 2006.

The NAR is also predicting that new-home sales will probably total 796,000 in 2007 and 693,000 next year, below the 1.05 million last year. In addition, they say that the median new-home price is estimated to drop 1.6 percent to $242,500 in 2007 before rising 0.4 percent to $243,600 in 2008.