Pending sales of existing homes in the Northeast increased 4.4 percent in May compared to the same time last year, according to a recent report from the National Association of Realtors (NAR).
Nationwide, pending sales of existing homes rebounded from a seven-month low in May by increasing 13.4 percent year-over-year. However, demand for mortgages sank last week and the market is still struggling under the weight of a glut of unsold properties.
Despite hopes among investors that the nation’s housing might be turning a corner, the rise in contracts was merely a correction after a 26.5 percent year-over-year fall in April, and the market will continue to bounce along the bottom, economists said.
A Mortgage Bankers Association report showed applications for loans to buy homes dropped 3 percent last week to the lowest level since Feb. 25.
"The market is still flat, not showing any of the improvement we had been anticipating a few months ago because of stronger job growth," said Patrick Newport, an economist at Global Insight in Massachusetts.
While the rise in contracts suggested a bounce back in home sales in June, economists cautioned against expecting a strong increase as many planned deals get canceled.
Demand for loans to buy a home has been modest so far this month.
The weak housing market is constraining national growth and economists do not see a recovery any time soon in a sector that is grappling with an oversupply of homes, which is keeping prices subdued.
The housing market collapse helped to push the nation’s economy into its worst recession since the 1930s.
According to NAR, there were 3.72 million used homes on the market in May, excluding the so-called shadow inventory of homes which are at risk of being foreclosed upon or have been seized by lenders.
Economists are cautiously optimistic that home sales will gradually improve later this year and chip away at the huge inventory. Data on Tuesday showed a moderation in the pace of decline in single-family home prices in April.
"What is emerging is that we have hit some bottom level of activity and that’s a good thing," said Steve Blitz, a senior economist at ITG Investment Research in New York.
"When you take that and marry it to the fact that you are not getting much new home construction, it means you are selling out of inventory of existing homes … and you start to get new home construction. The industry is slowly moving in the right direction."
A slightly optimistic note was also sounded by the chief executive officer of KB Home, the nation’s fifth-biggest homebuilder, which said its net orders for new homes were down 11 percent in the second quarter, compared with the same period of 2010 but jumped 53 percent from the first three months of the year.
"Although a broad-based housing recovery remains stalled, it appears that the worst of the crisis is behind the homebuilding industry as select markets for new homes are showing signs of stability," said Jeffrey Mezger, KB Home CEO.
