April 29, 2014

Surging pending home sales could bolster loan sales

Pending home sales surged in March, and this development could affect loan sales by increasing the supply of available mortgage debt.

The National Association of Realtors' Pending Home Sales Index rose 3.4 percent to 97.4 from a revised figure of 94.2 in February. The March reading was the highest since May 2011, and represented the first increase in the measure in nine moths.

The improvements in pending home sales were broad-based, ticking higher in the South, West and Northeast. These transactions declined slightly in the Midwest.

The gain in the overall index beat the predictions of several market experts, including economists in a Bloomberg poll that forecast a 1 percent gain in the index. A survey conducted by Reuters yielded the exact same forecast.

Home buyers face many headwinds
The surge in pending home sales could easily show pent-up demand. These transactions started dropping last summer when the Federal Reserve announced that it might soon taper its quantitative easing, according to the media outlet. These statements sparked concerns that falling stimulus could push borrowing costs higher.

Americans have been struggling with stringent lending requirements and rising home prices, according to Bloomberg. However, these consumers now have better access to credit, and the labor market seems to be picking up. These burgeoning conditions could make Americans more likely to purchase real estate.

Market experts optimistic about housing
"The backdrop in general for housing remains reasonably positive," Jim O'Sullivan, who works for Valhalla, N.Y.-based High Frequency Economics Ltd. as chief U.S. economist, told the news source. This market expert predicted a 2.5 percent increase in new home sales. "The labor market is improving, confidence generally has been edging up and mortgage rates are still pretty low."

Other market experts predicted that activity will improve as we move past winter, including Gennadiy Goldberg, U.S. strategist at TD Securities, according to The Wall Street Journal.

Improving weather could bolster sales
"The stronger pending home-sales report hints at resurgence in housing-market momentum during the typically busier spring buying season," he told the news source.

Lawrence Yun, NAR chief economist, said that the pickup in sales was bound to happen once the bleak weather conditions improved.

"After a dismal winter, more buyers got an opportunity to look at homes last month and are beginning to make contract offers," he said in a statement. 

In addition to commenting on the change in seasons, Yun also noted his positive outlook for how the housing market will perform going forward. "Sales activity is expected to steadily pick up as more inventory reaches the market, and from ongoing job creation in the economy," the NAR chief economist said.

There is certainly evidence to support his optimistic forecast, as the U.S. labor market has been improving and many believe that growth will accelerate in the second quarter, according to Reuters. If these positive estimates are accurate, it could put more money in the hands of consumers and bolster their optimism, motivating them to seek more credit.