U.S. pending home sales rose in all Regions in May, posting the first annual gain since April 2010

U.S. pending home sales reversed course in May and increased 8.2% on a seasonally adjusted basis following an 11.3% decline in April, the National Association of Realtors reported on June 29. This increase also follows May’s 3.8% decline in existing home sales and 2.1% decline in new home sales, which were reported last week. The pending home sales index is up 13.4% year over year, the first positive trend since the homebuyer tax credit expired in April 2010. However, the index is still about 30% below its early-2005 peak. This latest reversal suggests existing home sales are likely to increase in June because pending sales reflect contract signings rather than closings, and as a result they usually lead existing home sales by one to two months.

Standard & Poor’s Ratings Services considers May’s strong increase in pending sales to be a positive for the housing market and for the underlying collateral performance of U.S. residential mortgage-backed securities. However, the Mortgage Bankers Association’s weekly mortgage applications index, which includes purchase and refinance loans, declined a seasonally adjusted 2.7% for the week ended June 24, following a 5.9% decline a week earlier. This was the fourth weekly decline during the past five weeks. The low level of mortgage applications for home purchases mean existing/pending home sales may not improve significantly just yet–even though mortgage rates are at a year-to-date low of 4.46%. This is a negative for the housing market. Overall, we expect home prices to remain weak this year, but mortgage applications, sales, and home prices are likely to improve at least during the summer months.

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