An index looking at pending transactions for the sale of existing homes eased against a deteriorating economic backdrop but remain in a stable range, according to an industry group on Tuesday.

U.S. pending home sales tumbled by less than expectations with a 0.7% decline in October, according to the National Association of Realtors (NAR). The index now stands at 88.9, down from an upwardly revised 89.5 reading in September. The consensus from economists was for a 3.1% decline in the month.

Lawrence Yun, chief economist at NAR, emphasized that over the past year the pending homes sales index has fallen just 1%, which could be considered stable considering the broader economic context.

"Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range," he said. "We did see a spike in August when mortgage conditions temporarily improved, which underscores two things - there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market."

The index rose jumped 7.8% in the South to a 95.9 reading in October but remains 2.9% below year-ago levels. In the Northeast the index rose 0.6% to 68.1, but is 14.1% below October 2007. The Midwest index declined 4.3% to 79.7 in October and is 6.8% below a year ago. In the West, the index fell 8.7% to 103.7 but is 17.4% higher than October 2007

"Conditions remain uneven around the country, but some areas that are showing healthy gains in pending home sales from a year ago include many Florida and California markets, Providence, R.I.; Lansing, Mich.; Oklahoma City; and Las Vegas," the report said.

Yun projects that GDP growth in the U.S. will contract through the first half of 2009, then stabilize and expand in the latter part of the year when home sales recover.

"Given the critical role of housing in an economic recovery, we're confident sufficient stimulus will be offered to bring more buyers to the market," he said.

The NAR said existing-home sales are forecast to total 4.96 million this year before increasing to 5.19 million in 2009 and 5.55 million in 2010.

The group added that the 30-year fixed-rate mortgage will probably decline to 5.6% in the first quarter, rise slowly to 6.0% by the end of 2009, and average 6.2% in 2010.

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