February 28, 2012 (Chris Moore)

Contract signings for home purchases increased by 2.0 percent in January as the Pending Home Sales Index (PHSI) increased from a revised 95.1 in December to 97.0 in January according to the National Association of Realtors® (NAR).

The December Index was revised downward from 96.6 to 95.1 which increased December’s decline from 3.5 percent to 5.0 percent.

Lawrence Yun, chief economist of NAR, stated, “Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”

How many of the purchase contracts make it to closing remains to be seen. For the fourth consecutive month, nearly one in three NAR members reported at least one contract cancellation in January.

“Contract failures remain an issue, reported by one-third of Realtors® over the past few months, but home buyers are not giving up. Housing affordability conditions are too good to pass up. Our hope is lending conditions will gradually improve with sustained increases in closed existing-home sales,” Yun said in January.

Most contract failures are caused by declined mortgage applications or low appraisals but can also be caused by home inspection problems and employment losses. Some sales are still completed after the contract delay; while others will go on to make another offer.

Two of the four regions in the Index experienced declines in their monthly level of sales contract activity while all four of the regions posted higher levels of activity than the previous year.

In the South, monthly purchase contracts increased by 7.7 percent to 109.1, followed by the Northeast, which saw a gain of 7.6 percent to 78.2. The West fell 4.4 percent to 101.9 while the Midwest saw a monthly decline in purchase contracts of 3.8 percent to 88.1.

Compared to January 2011, the Midwest was 10.8 higher, the South gained 10.5 percent, the Northeast was 9.8 percent higher and the West was 0.7 percent higher than a year ago.

The PHSI is a forward looking indicator which generally indicates closings one to two months in the future.

Tags: pending home sales, existing home sales, contract signings, contract cancellations