The National Association of Realtors this morning (Dec. 10) reported that its Pending Home Sales Index for October, a measure of homes for sale that have gone to contract, rose 0.6% to 87.2 from 86.7 in September. The index, however, remains 18.4% its reading of 106.8% for October 2006.

The NAR also released its monthly forecast for 2007 and 2008 concomitantly with the Pending Sales Index, and it notably marks the first such monthly forecast this year that did not decline from the previous month. The NAR kept its estimate of existing home sales for 2007 at 5.67 million, and it raised slightly its estimte for sales in 2008 from 5.69 million last month to 5.70 million this month.

Prices of existing homes are expected to end this year down 1.9% to a median of $217,600 and then rise 0.3% to $218,300 in 2008.

"The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007," said Lawrence Yun, the NAR's chief economist.

Yun pointed to an improvement in the availability of mortgage credit as a primary factor in the forecast. "The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming," he said. "Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels."

The NAR said it expects "no sustained improvement" in sales of new homes until 2009, with new-home sale forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006. It put housing starts, including multifamily units, at 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. It projected a drop in the median new-home price of 3.0% to $239,100 for 2007 and another drop of 0.2% to $236,600 for 2008.

Regionally, the PHSI in the Northeast jumped 16.0% in October to 80.6 but remains 11.1% below a year ago. In the West, the index rose 8.4% to 87.3 but, 16.9% lower than October 2006. The index in the Midwest slipped 1.4% in October to 85.5, 11.7% below a year ago. In the South, the index dropped 7.8% in October to 91.6, 25.3% below October 2006.

"The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans," Yun said.

The NAR also estimates that the rate on 30-year fixed-rate mortgages will rise from its currently level of slightly below 6% to the 6.4% range by the end of 2008.

In a research note to investors, Carl Reichardt, home building analyst for Wachovia Capital Markets, questioned whether the news from NAR was a upbeat as it appeared. "While the index increased sequentially for the second time in a row in October, it still remains only 2% above its all-time low (since its inception in 2001), achieved in August," wrote Riechardt. "Additionally, it fell below 90 again for the third consecutive month, which it has only done, in total, four times. Given the volatility in the data set, it is too early to call for potential stabilization in the existing home market. It is also important to note that the Pending Home Sales Index represents signed contracts, which took place as far back as two and half months and thus may not reflect current conditions."