May 27, 2011 (Jeff Alan)

Pending home sales dropped 11.6 percent to 81.9 in April from an already downwardly revised 92.6 in March according to the National Association of Realtors (NAR). Lawrence Yun, NAR’s chief economist blames tight credit as the primary long term factor holding the market back.

Yun also noted that the dip in contracts could also be due to temporary factors such as a slowing economy due to rising oil prices, severe weather, and a rise in unemployment claims.

“The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,” he said. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”

Yun also added, “We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings.”

The Pending Home Index (PHI) is a forward-looking indicator that is based on contract signings, not closings, which normally occur about one to two months later. April’s reading of 81.9 puts the index 26.5 percent below April 2010’s index of 111.5. Last years index is considered to be elevated as buyers rushed to purchase homes before the end of the home buyer tax credit.

Regionally, the PHSI in the Northeast rose 1.7 percent to 64.5 in April, but is 33.4 percent below a year ago. In the Midwest the index fell 10.4 percent to 74.1 and is 30.2 percent below April 2010.

In the South, the PHSI dropped 17.2 percent to an index of 91.3 in April and is 27.0 percent below a year ago. In the West the index declined 8.9 percent to 89.1 and is 16.9 percent below April 2010.

Such a large drop in contract signings now could translate into very dismal summer for the housing industry.

Tags: NAR, pending home sales, tight credit, rising oil prices, severe weather, unemployment, contract signings, home buyer tax credit