Pending home sales up 6.3%; prices seen falling

Ed McMahon's housing troubles

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NEW YORK (CNNMoney.com) -- The number of homes under contract to be sold rose unexpectedly in April as buyers went bargain hunting, according to a report released Monday.

The Pending Home Sales Index from the National Association of Realtors (NAR) rose to 88.2 in April, up 6.3% from March's reading of 83 and the highest level since October. The increase defied the consensus estimate of economists polled by Briefing.com, which forecast pending sales to fall by 1%.

Despite the increase, April's reading remains down 13.1% from the same period last year, and off 29% from the index's peak in April 2005.

And NAR revised its existing home price outlook for 2008 downward. The group's June projections see prices falling 6.4% by the end of the year; in May it said 2008 prices would fall by 2.4%.

In conjunction with falling prices, the report issued a slightly improved 2008 forecast for existing home sales. NAR now expects to see home sales dip by 4.5%, whereas in May it expected a decline of 4.7%.

"Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it's unclear if they are investors or owner-occupants," said Lawrence Yun, chief economist for the NAR in a statement.

The Pending Home Sales Index was strongest in the Midwest, where it jumped 13%, and weakest in the Northeast, where it declined 1.9%.

The positive report indicates that the decline in home sales may be starting to slow. "Existing home sales have started to form what looks like a bottom," said Adam York, an economist with Wachovia Corp.

The outlook for new home sales is also mixed. New home prices are forecast to decline in 2008 by 3.1%, an improvement over May's projection of a 3.7% dip. But the 2008 outlook for new home sales deteriorated; NAR is calling for a drop of 31.7%, compared with May, when it projected a 30.9% slide.

Of course, one bullish report hardly signals the resurgence of the battered housing market. "You have to see a stability in prices and inventory before you say the market has turned a corner," cautioned Asha Bangalore, economist with Northern Trust Co.

The trade group's Pending Home Sales Index is considered a more forward-looking indicator of home sales than the NAR's closely watched existing home sales report. Unlike existing home sales estimates, pending home sales are usually counted a month or two before a closing sales contract is signed.

The Pending Home Sales index debuted in 2001, and a reading of 100 is equal to results that first year.