The housing market received a surprise bit of holiday cheer Thursday with the news that pending home sales unexpectedly jumped 10.4% in October.
“We nor [the consensus forecast] expected such a strong improvement in [pending home sales] in October; we believed foreclosure moratoria by several large banks would slow sales somewhat,” admitted Carl E. Reichardt Jr., a managing director and senior equity research analyst with Wells Fargo Securities in San Francisco. “….This data is a positive surprise and indicates that existing home sales activity could be improving at a more meaningful clip than heretofore believed.”
According to the National Association of Realtors (NAR), which produces this monthly indicator, pending homes sales rose to a reading of 89.3 in October, which represented a 10.4% increase compared to the previous month. On an annual basis, though, activity is still off 20.5% from the same month one year ago, when buyers were still trying to take advantage of the federal housing tax credit, which was then scheduled to expire in November 2009.
In his research note, Reichardt suggested at least one reason for the October 2010 boost: “mortgage rates, which reached 30-year lows in October,” he noted, with rates as low as 4.19% for a 30-year fixed-rate loan, according to Freddie Mac’s weekly survey.
But he also urged caution in his analysis. “Despite the meaningful jump, we note that [pending home sales] now sit at levels seen last in late 2008, so overall activity still looks weak,” Reichardt reminded. “Further, since pending home sales signify a contract, not a closing, it's possible that November and December existing home sales will not show a rebound directly correlated with [pending home sales] if cancellations rise as a result of uncertainty surrounding foreclosures or other factors.”
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: San Francisco, CA.