Pending Sales Index Lowered Again, Softening of Housing Market Predicted

Take this advice, potential borrowers: contact a mortgage company today.

How come? Because more and more signs point to the market favoring buyers, as the index of pending home sales in October tumbled again, suggesting more softening demand for the sector and more leverage for borrowers.

The National Association of Realtors‘ index for pending sales of existing homes decreased at a seasonally adjusted annual rate of 1.7% to 107.2 from September’s 109.1, the industry group said Monday.

Its index, based on signed contracts for used homes, was 13.2% below the level of October 2005.

Although the gauge declined for the eighth time in a year, David Lereah, NAR’s chief economist, expects a “fairly steady pace” of home sales for the next two months.

“It’s important to focus on where the housing market is now - it appears to be stabilizing, and comparisons with an unsustainable boom mask the fact that home sales remain historically high - they’ll stay that way through 2007,” Lereah said.

“In addition, a temporary correction in prices distracts from the fact that it is primarily the number of home sales that affects the economy, and the number for this year will be the third highest on record,” he said.

By region, the index showed a 2.1% decline in the Northeast in October from September - and a 13.5% decrease since October 2005. It decreased 0.6% in the Midwest - and was down 15.4% in the 12-month span.

The West saw a 2.7% drop - and a 17.4% decline in the past year. The index for the South fell by 1.7% - and was 9.3% lower since October 2005.

The NAR’s pending home sales index was designed to try measuring which way the housing market is going in the future. It is based on pending sales of existing homes, including single-family homes and condominiums.

A home sale is pending when the mortgage contract has been signed but the transaction has not closed. Pending sales typically close within one or two months of signing.