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Pending home sales increase, signal strong spring for market

Contract signings on homes jumped in February and are up significantly for the year, according to the National Association of Realtors (NAR), a sign that the housing market is heading for a stronger spring this year.

NAR’s pending home sales index increased 3.1 percent to 106.9 from 103.7 in January, and was up 12 percent year over year. The index reached the highest level since June 2013, and has increased year over year for six consecutive months, the trade group said.

“These [are] very solid gains, and it is implying that the buyers are right there,” NAR’s Chief Economist Lawrence Yun said in a webcast on Monday. “Now there appears to be a steady flow of people coming into the market.”

The figures were consistent with strong new-home sales numbers for February as reported last week by the Commerce Department. Both new-home sales and pending-home sales are forward-looking indicators based on contract signings that suggest that the market could be headed for a strong spring. New-home sales were up 7.8 percent from January to a seasonally adjusted annual pace of 539,000, the report said. New-home sales were up nearly 25 percent over the February 2014 level. Last February was especially slow, however, during one of the harshest winters on record.

Yun said that the inventory of homes remains a tight four-to-five months, whereas it ideally needs to be six-to-seven months to keep prices in check and give buyers enough choices. He said builders have been struggling to get credit from lendeers, which have slowed down overall home building. 

"They are still struggling to obtain those construction loans," he said. "Local lenders are being very tight about what is available, and the local lenders are essentially saying that the new financial regulations is really hindering what they can do." 

David Crowe, chief economist for the National Association of Home Builders, disagreed with the assessment that access to construction loans is a major obstacle for builders. He said the main reason holding builders back is the modest demand for homes. Builders aren't doing much speculative building, he said. 

Crowe also said that the supply of new homes also has been slowed by labor shortages in the construction industry and a shortage of available land. 

"Credit shortages are down the list further than they used to be," Crowe said in a telephone interview. "The builders aren’t going to get ahead of themselves this time around. Demand is reviving, but it isn’t robust." 


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