Home/Mortgages/Housing Contracts Surge, How Many Will Close?

November 30, 2011 (Chris Moore)

Contract signings surged 10.4 percent in October as the Pending Home Sales Index (PHSI) increased from 84.5 in September to 93.3 in October according to the National Association of Realtors® (NAR), but with the recent surge in contract cancellations, how many will make it to closing?

The increase in contract activity in October follows three months of declines and lifted the Index 9.2 percent higher than last year when it stood at 85.5.

Lawrence Yun, chief economist of NAR, stated, “Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows and there is a pent-up demand from buyers who normally would have entered the market in recent years. We hope this is indicates more buyers are taking advantage of the excellent affordability conditions.”

How many of those contract signings turn into closed deals remains to be seen as the number of NAR members who reported at least one contract cancellation in October surged to 33 percent from 18 percent in September. (See: Contract Failures Hurting Home Sales)

“Although contract signings are up, not all contracts lead to closings. Many potential home buyers inadvertently hurt their credit scores and chances of getting a mortgage through easily averted actions, such as cancelling an old credit line while taking on a new one,” Yun said.

Three of the four regions in the Index posted an increase in their monthly level of sales contract activity and all regions were higher than the levels posted a year ago.

Pending home sales in the South increased by 8.8 percent to 99.5 and were 9.7 percent higher than a year ago, while in the West, pending home sales fell 0.3 percent to 105.5, but were 8.1 percent higher than in October of 2010.

In the Northeast, the PHSI rose 17.7 percent to 71.3 in October and was 3.4 percent higher than October 2010, and in the Midwest, the Index surged 24.1 percent to 88.7 and was 13.2 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