Key home sale index slides to 6-year low
Reading of pending home sales sinks to lowest since September 2001, suggesting more pain for the housing market.
NEW YORK (CNNMoney.com) -- Existing home sales are likely to see more declines in coming months as a key reading of pending deals fell to nearly a six-year low in May, a real estate group said Tuesday.
The National Association of Realtors said its index of pending home sales, which reflects homes under contract, sank to 97.7 in May from 101.2 in April. The latest reading is 13.3 percent lower than May 2006.
The index was created in 2001 to be a more forward-looking reading on home sales than the group's existing home sales report, which charts sales at the time of closing. The pending home sales index tracks when a sales agreement is signed, generally a month or two ahead of closing.
The index was set at 100 at the start in 2001. The May reading is the weakest since September 2001, the lowest on record, when the Sept. 11 attacks hit consumer confidence. The latest reading matches the third lowest.
Lawrence Yun, the Realtors' senior economist, said home sales continue to be hit by tighter lending criteria due to problems with subprime mortgages, loans to buyers with weak credit, coupled with and a lack of buyer confidence in the market.
"Some transactions are being postponed from mortgage market disruptions," he said in the group's report. "But better supervised lending will put housing in a fundamentally healthier state over the long term."
The existing home sales report had already shown problems before the latest pending home sales numbers. Last month the group's May figures showed the slowest pace of home sales since June 2003, while the glut of homes on the market hit a 15-year high.
The pending home sales report does not including any reading on prices. But both new and existing home prices have been falling year over year as the glut of homes forces sellers to ask less.
The downturn in home sales and problems in subprime mortgages have also hit new home sales.
Last week Lennar (Charts, Fortune 500), the nation's largest builder by revenue, and KB Home (Charts, Fortune 500) both reported unexpected losses in the most recent quarter. In addition builders Centex (Charts, Fortune 500), Pulte Homes (Charts, Fortune 500) and Beazer Homes USA (Charts, Fortune 500) have both posted an operating loss in their two latest quarters. Hovnanian Enterprises (Charts, Fortune 500) has had three quarters of losses.