Pending Home Sales Surprises to the Upside

An upward surprise in this morning’s pending home sales data  helped to restore some sentiment to the market after a disappointing personal income release.  Pending home sales were up 3.6% in June, compared to a consensus forecast of 0.7%.  This was the 5th consecutive month of gains.  Pending home sales were up in all four regions with the south leading the way with a rise of 7.1% (see chart).  I mentioned this index may have some positive risk in this week’s US Week Ahead.  Low home prices, tax incentives, and attractive mortgage rates continue to draw buyers back into the market.  This number continues to support what appears to be a stabilization in the US housing market.  But, continued weakness in the labor market coupled with high levels of foreclosures will prevent housing from realizing its full potential for the foreseeable future.

Pending Home Sales

Source: NAR

The US$8,000 first time home buyer program is set to expire on December 1st 2009.  It will be interesting to monitor the effects this may have on the current housing market, if not extended.  Potentially, we could see a rush of purchases over the next several months as individuals try to take advantage of the discount.  I imagine this incentive has had the biggest impact in areas with relatively low home values, given income stipulations, and the fact that saving 8K on a 100K home looks much more attractive then saving 8K on a 500K purchase.  This could partially explain the large gains seen this month in the South.  There are also numerous other state incentives designed to stimulate home sales, which are likely adding to sales.