Pending home sales fall sharply in U.S.

By Mary Ellen Podmolik
Posted July 1, 2010 at 11:27 a.m.

Chicago-area real estate agents sensed a fall-off in homebuyer traffic last month, and on Thursday, they were validated: Sales contracts on home purchases plunged 32.1 percent in the Midwest and 30 percent nationally in May.

The index of pending home sales, measured by the National Association of Realtors, fell to 77.6 nationally in May from April, far worse than expected. Economists surveyed by Thomson Reuters had predicted a drop of 11.3 percent from April, to a reading of 98.4. For the Midwest, the index dropped to 70.8, which is a drop of 32.1 percent from April and down 20.2 percent from a year ago.

A reading of 100 is equivalent to 2001’s average level of sales activity.

Pending home sales, which measure purchase contracts signed but not yet closed, aren’t always considered a true barometer of the housing industry’s health. They can overinflate existing home sales activity, for one thing, since some consumers fail to qualify for financing and the deals fall through.

May was different, however, since it was the first month of activity following the expiration of federal homebuyer tax credits. Buyers had to have purchase contracts signed by April 30 in order to qualify for federal tax credits of up to $8,000.

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