Logo of the National Association of Realtors. (Photo credit: Wikipedia)
Pending Home Sales
The National Association of Realtors recently announced that the Pending Home Sales Index for the month of February dropped to 104.8 points. This translates a 0.4 percent drop from the January sales index. However, the NAR emphasized that this is not an indication that the recovery of the housing market is stalling. This index is based on the number of contracts to buy pre-owned homes in the US. While the number of contracts might have reduced, the Pending Home Sales Index for the month of February is still at the second highest level in more than three years.
Actual vs. Projected Performance
In January, the number of contracts to buy homes had risen by 4.5 percent. Experts expected the number of contracts to drop slightly in February. Initially, they had forecast a 0.2 percent drop, but the pending home sales index slipped by 0.4 percent for the month of February. According to experts, the slight pullback of supply may actually be a good thing. Principles of economics dictate that when there is a shortage of supply, high demand will push prices up. Consequently, this will help the housing market to recover. The shortage of homes can be attributed largely to the Wait and See approach adopted by home owners. As the housing market recovers, more and more homeowners are holding onto their properties hoping to sell them at better prices when the market makes a full recovery.
The huge shortage of homes for sale can only be breached by new constructions. According to Lawrence Yun, NAR Chief Economist, housing starts need to increase by 50 percent if the current shortage of inventory is to be relieved. Data from S&P/Case Shiller indicate that prices of homes in 20 metropolitan city across the US have increased by 8.1 percent. This is the biggest increase since June 2006.