March 27, 2012 (Chris Moore)

Contract signings for home purchases stumbled in February, falling 0.5 percent from January, as the Pending Home Sales Index (PHSI) declined from 97.0 to 96.5 according to the National Association of Realtors® (NAR).

The PHSI still remained a healthy 9.2 percent above February 2011’s level of 88.4 leading to continued optimism about the prospects for 2012.

Lawrence Yun, chief economist of NAR, stated, “The spring home buying season looks bright because of an elevated level of contract offers so far this year. If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7 to 10 percent in 2012.”

But cancelled purchase contracts continue to be a cause for concern. For the fifth consecutive month, nearly one in three NAR members reported at least one contract cancellation in February.

“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 back 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.

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

In the South, the index fell by 3.0 percent to 105.8, followed by the West, which saw a decline of 2.6 percent to 99.3 and in the Northeast the index fell 0.6 percent to 77.7. The Midwest was the only bright spot with a gain of 6.5 percent to 93.8

Compared to February 2011, the Midwest was 19.0 percent higher, the Northeast gained 18.4 percent and the South was 7.8 percent higher while the West posted the only annual decline of 1.8 percent.

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