Pending Home Sales Rise -- Will it Last?

According to a report in Business Week the number of U.S. homebuyers who agreed to purchase a previously occupied home in April posted the largest monthly jump in nearly eight years, a sign that sales are finally coming to life after a long and painful slump.

The National Association of Realtors said Tuesday its seasonally adjusted index of sales contracts signed in April surged 6.7 percent to 90.3, far exceeding analysts’ forecasts. It was the biggest monthly jump since October 2001, when pending sales rose 9.2 percent.

Economists were encouraged by the report, and stock indexes advanced modestly.

“This is yet another positive indication that the bottoming process is forming,” Jennifer Lee, an economist at BMO Capital Markets, wrote in a note to clients. “Now if only prices would stabilize.”

The Realtors’ index was 3.2 percent above last year’s levels and has risen for three straight months after hitting a record low in January. A nearly 33 percent sales increase in the Northeast and a 9.8 percent jump in the Midwest led the overall surge. Sales contracts rose 1.8 percent in April from a month earlier in the West, but fell 0.2 percent in the South.

The big boost likely reflects the impact of a new $8,000 tax credit for first-time homebuyers that was included in the economic stimulus bill signed by President Barack Obama in February. Since buyers need to finish their purchases by Nov. 30 to claim the credit, “we expect greater activity in the months ahead,” Lawrence Yun, the Realtors’ chief economist, said in a statement.

Obviously this is great news for some areas of the country. It will be interesting to see if this trend will continue. One impact on continued increases will most likely hinge on the mortgage rates. Some industry experts are predicting rates will rise steadily over the next few months. If this happens, it could mean another downturn in the housing market and economy across the board. I think it’s important that all possible steps be taken to insure rates don’t rise above a level homebuyers can tolerate.