Pending home sales unexpectedly soared by 7.4% in August, according to the National Association of Realtors (NAR) on Wednesday. The advance is the largest monthly gain in almost seven years, and follows a 2.7% decline in July and a 5.8% rebound in June.
The consensus was expecting a 1.3% decline in the month.
The index now stands at 93.4, up from the previous month's 87.0 reading.
"Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie," he said. "August shows some unleashing of pent-up demand before the credit crisis accelerated in September," said Lawrence Yun, chief economist at NAR.
He said home sales are improving due to the increased affordability of houses. "The improvement also reflects the drop in mortgage interest rates after the government takeover of Freddie Mac and Fannie Mae. It's unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we're hopeful most of the increase will translate into closed existing-home sales," he said.
Regional results for August were all positive. The Northeast posted an 8.4% increase following a 7.5% loss in July, while the West saw a whopping 18.64% advance following an 8.4% decrease.
The Midwest saw sales rise 3.6% after a 2.8% advance in July, and sales in the South were up 2.3% after a marginal 0.1% increase in July.
"What we're seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region," Yun said.
The NAR projects the 30-year fixed-rate mortgage rate to average 6.1% in Q4 and then trend up gradually to 6.6% by the end of 2009. The NAR also said the housing affordability index is likely to average 18 percentage points higher in 2008 than in 2007.
The Pending Home Sales Index looks at home sales that have been signed but not finalized, a process that takes another month or two. The value of the index lies in its ability to forecast existing home sales, which represent eight-tenths of the market.
By Patrick McGee and edited by Nancy Girgis
©CEP News Ltd. 2008