Here’s Why Pending Home Sales Plummeted in April

According to the National Association of Realtors, The Pending Home Sales Index (PHSI), a forward-looking indicator, dropped 11.6 percent to 81.9 in April, down from 92.6 in March. The number is down 26.5 percent from a peak 111.5 in April 2010 when buyers were rushing to meet the deadline for the home buyer tax credit.

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

The news hasn’t done much for real estate stocks (NYSE:IYR), down 0.06% today, but might be responsible for the 0.86% hike in home builders stocks (NYSE:XHB).

While the PHSI in the Northeast actually rose 1.7% to 64.5 in April, it is still 33.4% below its figure for this time last year. PHSI in the Midwest is down 10.4% to 74.1, down 30.2% from April 2010. Pending home sales in the South dropped the most at a decline of 17.2% in April, 27% below a year ago.  Still, the PHSI for the South is 91.3, significantly higher than that of other regions. In the West the index declined 8.9% to 89.1 and is 16.9% below April 2010 figures.

NAR chief economist Lawrence Yun says decrease in the number of contracts may only be temporary. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.” But with oil prices declining or at least leveling out in most areas, and the weather hopefully settling down as summer and the busiest home buying season of the year approaches, those figures might jump back up, though Yun is making no promises. And of course, there are still long-term factors affecting home buying in the U.S., most significantly the “excessively tight mortgage underwriting process,” said Yun.

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