Pending home sales bounce back in May

By Vicki Needham - 06/27/12 01:47 PM ET

Pending home sales bounced back in May, matching the highest level in two years, another sign the housing market is recovering.

The sales of pending homes index increased 5.9 percent to 101.1 last month up from 95.5 in April, the National Association of Realtors reported Wednesday.

“The housing market is clearly superior this year compared with the past four years," said Lawrence Yun, NAR chief economist.

“Actual closings for existing-home sales have been notably higher since the beginning of the year and we’re on track to see a 9 to 10 percent improvement in total sales for 2012," he said.

May's reading matches March's level, the highest since April 2010, when a tax credit to boost home sales ended, marking 13 consecutive months of year-over-year gains.

The index is 13.3 percent higher than the same period a year ago, when it was 89.2. The index hit rock bottom at 75.88 in June 2010, after the tax credit expired.

Any reading of 100 or higher reflects a healthy market.

The data reflect contracts but not closings, which takes about two months.

A separate report on Tuesday showed that home prices increased in 19 of 20 major U.S. cities in April, according to the S&P's/Case-Shiller index.

Contract signings increased across all regions in May, with the largest increase in the West, which showed a 14.5 percent jump in signings. They were up 6.3 percent in the Midwest, 4.8 percent in the Northeast and 1.1 percent in the South.

The national median existing-home price is expected to rise 3 percent this year and another 5.7 percent in 2013, NAR said.

Realtors warn that low inventory could hold back some contract activity.

“If credit conditions returned to normal and if we had more inventory, especially in the lower price ranges, more people would become successful buyers," Yun said.

"In an environment of historically favorable housing affordability conditions, it’s frustrating to see some consumers thwarted in the process."

Low inventory results partly from homeowners who owe more than their homses are worth and are unwilling to put them on the market because of a lengthy short sale process, or additional cash to complete the transaction.

NAR estimates 85 percent of homeowners have positive equity, with 15 percent in an underwater situation.

“Low inventory can be cured by increasing new home construction,” Yun said.

Housing starts should rise by 26 percent this year and another 50 percent in 2013, he said.

“If housing starts do not rise in a meaningful way over the next two years due to the difficulty in getting construction loans, and barring an unexpected shift in the economy, the steady shedding of inventory could lead to shortages where home prices could get bid up close to 10 percent in 2013,” Yun said.