Home sales plunge in March

NEW YORK (CNNMoney.com) -- Problems in subprime mortgages caused a sharp drop in home sellers being able to find buyers for their homes in March, according to a trade group report Tuesday that showed the battered real estate market was much weaker than expected.

The National Association of Realtors' Pending Home Sales Index fell 4.9 percent in March, following a 1.1 percent increase in February. The index was down 10.5 percent from the March 2006 reading.

Economists surveyed by Briefing.com had been looking for a 0.4 percent rise in the index, which tracks the number of existing homes for which a sales contract has been signed but a closing has not yet taken place.

"Although the weather improved in March, we're starting to see the effects of a decline in subprime lending and tighter lending standards," said a statement from David Lereah, the chief economist for the trade group. "Home sales will be relatively sluggish in the second quarter, but a modest uptrend should resume during the second half of this year."

Subprime mortgages, which are the types of home loans made to potential buyers with less than top credit, have become a significant problem in recent months, with rising deliquencies and defaults by borrowers and a number of lenders pulling out of the market. That, in turn, has choked off the supply of credit to some potential home buyers.

The Pending Home Sales Index, which started in 2001, is considered a more forward-looking indicator of market strength than the traditional existing home sales report, which records sales at the time of closing.

The Realtors' existing home sales report and the government's new home sales reading have both shown tremendous weakness in the pace of sales in recent months, along with a glut of both types of homes on the market, which has depressed prices. The Pending Home Sales Index does not contain any home price measure.

A reading of 100 in the index is equal to the average level of contract activity during 2001, the first year of the index, which coincidentally was the start of the home sale and home building boom in the country that extended into 2006. But the market softened significantly in the later part of last year and has been battered by the subprime mortgage problems so far this year.

The weak real estate market has badly hurt results of the nation's largest builders. Monday Centex (Charts, Fortune 500), the nation's No. 3 builder, reported a larger-than-forecast loss in the most recent quarter, its second straight quarter in the red. No. 4 builder Pulte Homes (Charts, Fortune 500) also reported its second straight losing quarter Wednesday. Also in April No. 2 home builder D.R. Horton (Charts, Fortune 500) reported the typical start to the spring home buying season hasn't begun.

The nation's largest home builder Lennar (Charts, Fortune 500) and No. 5 KB Home (Charts, Fortune 500) both reported losses in their quarters ending in November before returning to the black in the most recent period.