Another Rise in Pending Sales Contracts

The month of April saw the largest increase in eight years in terms of people buying pre-owned homes, though there are still plenty of bad signs for the nation’s real estate market. Property sales are expected to climb through the summer, possibly to the levels of before the crash of the stock market last fall, but prices should continue to fall well into next year. Continued unemployment, which is causing record numbers of foreclosures, and rising interest rates could hinder a potential recovery in the real estate market. The National Association of Realtors reported Tuesday that April sales contracts are up almost 7%, far ahead of what experts had predicted. It was the biggest one-month jump since Oct. 2001 when sales rose a little over 9%.

The $8,000 tax credit for first time buyers in President Obama’s February economic stimulus bill is likely a key reason for the jump. To receive the credit, buyers must close before Nov. 30, so experts are expecting the rise in sales to continue in the coming months.

There is generally a one or two month gap between when a contract to buy a home is signed and when the deal closes, so the contracts index is an indicator of future sales numbers. While the increase in housing demand is encouraging, many economists fall short of optimistic. Interest rates are on the rise, so homes are less affordable. The average rate on a 30 year fixed rate loan jumped from 5% last week to 5.3%.

Stock indexes have generally had modest gains through the week, though trading has been tight and the gains are minimal. Financial stocks have taken a hit this week after several banks announced their intentions to raise capital in order to repay federal bailout money.

The overall health of the real estate market, slumping for the last three years, is a key problem for the US economy. While sales do appear to be recovering, analysts warn that prices will take longer to steady because of the massive inventory of unsold homes. Prices are likely to continue falling until foreclosures start to wane, which experts predict won‘t happen until the end of 2010.

The median sales price for April is down more than 15% from last year to $170k, caused by foreclosure sales and other low-end distressed properties. That is the second biggest drop, year to year on record.

The effectiveness of President Osama’s $50 billion plan to prevent foreclosures by assisting with loan modifications is still unknown. Analysts are concerned that its impact will be minimal. Economists are reporting that there has not been a significant rise in modifications.

The Realtors’ pending sales contracts index was more than 3% higher than a year ago, the third month in a row with an increase after the record low set in January. The national surge was boosted by a 32% sales increase in the Northeast and a 10% rise in the Midwest. Sales remained steady or gained slightly in the South and the West.

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