Are Pending Home Sales Struggling Ahead of Spring?

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People expecting a jump in the U.S. housing market at the start of spring will be disappointed, as fewer buyers signed contracts last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, dipped 0.4 percent to 104.8 in February, compared to a downwardly revised 105.2 in January, according to the National Association of Realtors. Analysts were expecting a decline of about 0.3 percent.

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Before January, the last time the index posted a higher reading was in April 2010, when it reached 110.9, just before the deadline for the home-buyer tax credit. An index reading of 100 equals the average level of contract signings during 2001.

Lawrence Yun, NAR chief economist, notes the low inventory situation in the housing market. “Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels,” he said. “Most local home builders are small businesses and simply don’t have access to capital on Wall Street. Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market.”

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