Posted by Joseph Y. Calhoun, III

Pending home sales in May (based on signed contracts, not closings) rose for the 4th consecutive month:

Pending home sales show a sustained uptrend, rising for four consecutive months with very favorable housing affordability and a first-time buyer tax credit boosting activity, according to the National Association of Realtors®.

The Pending Home Sales Index,¹ a forward-looking indicator based on contracts signed in May, increased 0.1 percent to 90.7 from an upwardly revised reading of 90.6 in April, and is 6.7 percent higher than May 2008 when it was 85.0. The last time there were four consecutive monthly gains was in October 2004.

This is just based on contract signings so it doesn’t mean anything yet. Getting to closing requires, among other things, an appraisal which is high enough to approve the loan. That is apparently becoming a problem:

Lawrence Yun, NAR chief economist, cautions that there could be delays in the number of contracts that go to closing. “Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he said. “Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.”

Of course, during the boom an appraisal wasn’t a problem because flexible appraisors were a dime a dozen. Now that the ranks of appraisors has been  thinned to the real professionals, getting an appraisor to “hit the number” is a little more difficult. The NAR apparently would like to see those flexible standards return.

We’re also continuing to see a divergence in sales trends. Pending sales in the Northeast and Midwest are rising pretty impressively, up 6.8 and 11.4% over last year. The problem with appraisals is primarily in the South and West (more foreclosures?) where pending sales are rising but aren’t being translated into closings.