Pending Sales Increase May Point to Budding Market Recovery

The ""National Association of Realtors'"":http://www.realtor.org/ (NAR) pending home sales index reported strong positive movement over the month of October, rising 10.4 percent from September.

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The index, which measures sales contracts but not closings, is also 9.2 percent above its rate a year ago.

In recent months, comparing year-over-year pending home sales was difficult because the homebuyer tax credit in 2010 skewed the results. NAR's chief economist, Lawrence Yun, says October's data allows for an ""apples to apples"" comparison in year-over-year data.

Thus, the monthly and year-over-year increase in sales contracts in October is a positive indication for the market.

However, actual closings might not match contract signings, Yun warns. Historically, he says, contract signings have aligned closely with contract closings, but in the past couple of years friction in the market has widened the gap.

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Nonetheless, ""I'm actually encouraged by these numbers,"" Yun says. This could be the first sign of sustained recovery in the market, he says.

Pending home sales rose in three of four regions in October, falling only in the West, which experienced a 0.3 percent decline to 105.5. The rate, however, is 8.1 percent higher than last year.

The Midwest experienced the greatest increase in contract signings in October, rising 24.1 percent to 88.7. The region's pending home sales are 13.2 percent above their rate last year.

Pending home sales in the Northeast rose 17.7 percent to 71.3 for the month. The rate is up 3.4 percent from last year.

The South experienced an 8.6 percent increase in October arriving at 99.5 for the month, which is 9.7 percent above the rate recorded in October 2010.

Yun says one factor that may drive purchases is rent rates, which are not only rising but accelerating.

In the past when rental rates rose, home prices rose with them. However, Yun says homes are currently undervalued while rents continue to rise, making home buying an attractive option for some.

""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,"" Yun says. ""We hope this is indicates more buyers are taking advantage of the excellent affordability conditions.""