Though the factors in favor of buying are many, including interest rates… (Lucy Nicholson, Reuters )
Pending sales of previously owned homes took a tumble in April, according to data from an industry group, a foreboding sign that the key spring shopping season is off to a weak start.
The National Assn. of Realtors said Friday that its index for pending home sales, which is based on the number of contracts signed each month, fell 11.6% from March and was down 26.5% from the same month last year. The drop in the index was another indicator that buyers are scarce.
"Really the housing market is still in the doldrums," said Gerd-Ulf Krueger, principal economist at Housingecon.com. "I think what's really holding it back is an utter lack of confidence that this will turn around soon."
The factors in favor of buying are many: Interest rates recently hit their lowest level all year, prices are so low that it is now more affordable to buy than rent in several markets, there is a steady supply of homes because of the number of foreclosures and other so-called distressed properties in the pipeline, and the government is continuing to fund low-cost loans for buyers that require little down payment.
But none of that appears to be overriding the sense of fear buyers have about prices, said Patrick Newport, chief economist for consulting firm IHS Global Insight.
"The key thing that accounts for the weakness is the fact that housing prices are dropping," Newport said. "It creates a lot of uncertainty and it spooks a lot of people from participating in the housing market because people don't want to buy if your home is going to drop in value right off the bat."
A year ago, contracts surged as April 2010 was the last month in which buyers could sign a contract and qualify for a federal tax credit. Home sales and prices have been weak since that credit expired.
Foreclosures have continued to make up a big chunk of the market, weighing down prices. The home price gains made after the housing market bottomed in April 2009 have practically vanished, according to a closely watched index that tracks home prices in the U.S.' biggest metropolitan areas.
Many economists expect that index, the Standard & Poor's/Case-Shiller index for 20 major U.S. cities, to push below its previous bottom hit in April 2009 when data for March are released Tuesday. A continued drop in home prices indicates the nation's housing woes continue despite a recovery in the broader economy.
"The housing market is still very soft," said Mark Zandi, chief economist at Moody's Economy.com. "Home sales and housing starts are at best flat and home prices are falling again."
The poor showing in pending home sales doesn't bode well for the spring shopping season, typically the most important period for the housing market. The index hit 81.9 last month. An index level of 100 is considered healthy.
In the West, the pending home sales index fell 8.9% from the previous month. The index rose 1.7% in the Northeast, fell 10.4% in the Midwest and dropped 17.2% in the South.
Some economists said the sharp dip might be a blip.
Newport of IHS Global Insight, for instance, pointed to a recent uptick in mortgage applications in April as telling a different story from the pending sales numbers. Zandi said the April figures could have been distorted by seasonal factors such as the weather. Lawrence Yun, the chief economist for the real estate group, said in a news release that he was hopeful the April plunge might be temporary.
"The pullback in contract signings is disappointing and implies a slower-than-expected market recovery in upcoming months," Yun said. "The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years and a sudden rise in unemployment claims."