Here’s Why Pending Home Sales Declined in July

According to the National Association of Realtors, The Pending Home Sales Index (PHSI), a forward-looking indicator, fell 1.3% in July to 89.7, down from 90.9 in June. The number is up 14.4% from July 2010.

This data reflects contracts, but not closings, which usually don’t occur until a month or two after contracts are signed.

The news is giving a boost to real estate stocks (NYSE:IYR), already up 2.36% today, as well as home builders stocks (NYSE:XHB), up 4.05% today.

While PHSI in the Northeast slipped 2.0% to 67.5 in July, it is still 9.7% higher than July 2010. In the Midwest the index fell 0.8% to 79.1 in July but is 18.8% above a year ago. Pending home sales in the South fell 4.8% to an index of 94.4 but are 9.5% higher than July 2010. In the West the index rose 3.6% to 110.8 in July and is 20.6% above June 2010 figures.

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National Association of Realtors chief economist Lawrence Yun said in this morning’s report that sales activity is underperforming. “The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” he said. “We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process.”