Pending home sales fall 4.7 percent

By Alan Zibel, AP Business Writer  |  July 8, 2008

WASHINGTON --A measurement of pending home sales fell to the third-lowest reading on record in May as the housing market's recovery continued to prove elusive.

The National Association of Realtors' seasonally adjusted index of pending sales for existing homes fell 4.7 percent to 84.7 from an upwardly revised April reading of 88.9. The index was 14 percent below year-ago levels.

"The overall decline in contract signings suggests we are not out of the woods by any means," NAR Chief Economist Lawrence Yun said in a statement.

Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.

Wall Street economists surveyed by Thomson/IFR had predicted the index would come in at 87. The index, which sunk to a record low of 83 in March, stood at 98.5 in May 2007. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.

Pending sales fell around the U.S., sinking the most -- 7.1 percent -- in the South, and the least -- 1.3 percent -- in the West.

Sales of existing homes edged up in May, indicating that buyers were taking advantage of deeply discounted prices. But many economists believe prices must drop further before the housing industry can mount a sustained recovery.

The Realtors projects existing U.S. home sales will fall 6.1 percent in 2008 to 5.31 million, though the group expects sales to rebound in the second half of the year.

It projects median prices -- the point at which half of the homes sell for less and half for more -- will fall 6.2 percent to $205,300. It would be the second straight year in which that measurement has fallen nationwide.

Much of the downward pressure on prices comes from foreclosures and so-called short sales, in which a lender accepts an offer less than the value of the mortgage. These distressed sales can be discounted by up to 50 percent, forcing home sellers to slash their listing prices to compete.

"The speed at which home prices has declined in a few select markets is unprecedented, but the large price declines in those areas have enticed bargain hunters back into the market," Yun said.