Are Pending Home Sales Struggling Ahead of Spring?

People expecting a jump in the U.S. housing market at the start of spring will be disappointed, as fewer buyers signed contracts last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, dipped 0.4 percent to 104.8 in February, compared to a downwardly revised 105.2 in January, according to the National Association of Realtors. Analysts were expecting a decline of about 0.3 percent.

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Before January, the last time the index posted a higher reading was in April 2010, when it reached 110.9, just before the deadline for the home-buyer tax credit. An index reading of 100 equals the average level of contract signings during 2001.

Lawrence Yun, NAR chief economist, notes the low inventory situation in the housing market. “Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels,” he said. “Most local home builders are small businesses and simply don’t have access to capital on Wall Street. Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market.”

The real estate market has been receiving a boost from record low interest rates for years, courtesy of the Federal Reserve. Although pending home sales decreased in February, the index is 8.4 percent higher than the same period last year. Furthermore, the contract signing activity has been above year-ago levels for 22 months.

Overall, The Pending Home Sales Index was mixed across the country. The index declined 2.5 percent to 82.8 in the Northeast, while the South region edged 0.3 percent lower to 118.8. The Midwest and West regions rose 0.4 percent and 0.1 percent, respectively.

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The National Association of Realtors expects existing-home sales to increase about 7 percent this year to approximately 5 million sales. The national median existing-home price is forecast to rise nearly 7 percent, which echoes recent data. Earlier this week, the S&P/Case-Shiller Home Price Indices showed that for the twelve months ended January 2013, home prices increased 7.3 percent in the 10-City Composite and 8.1 percent in the 20-City Composite. What’s more, 19 out of 20 cities showed acceleration in year-over-year returns, Detroit being the only city to grow at a slower rate than before.

Home builders and other related stocks were mixed after the NAR report. Shares of DR Horton (NYSE:DHI) and Lowe’s Companies (NYSE:LOW) traded slightly higher, while Toll Brothers (NYSE:TOL) and The Home Depot (NYSE:HD) declined.

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