US sees unexpected increase in pending home sales

Figures from the National Association of Realtors (NAR) has revealed a surprise rise in the US in agreements to purchase homes in June.

The news was a welcome relief said the association, who added that a rise in contract activity was required for a housing recovery.

Following an increase in defaults in the sub-prime sector, a slowdown has hit the US housing market.

Sub-prime mortgages are aimed at people with impaired credit histories or those on incomes that are unpredictable.

As a result of the sub-prime problems, house prices have fallen and borrowers defaulting on payments has risen and mortgages have been harder to secure.

The NAR‘s pending home sales index increased 5.3% in June to 89, up from 84.5 in May. This represented the highest reading since October 2007.

A pending sale is one that has been agreed but not finalised.

However, despite the unexpected rise, the figure remains 12.3% below the figure in June 2007 which stood at 101.4.

NAR’s chief economist, Lawrence Yun, said sales have been in a pattern of rising and falling within a fairly narrow range and the unexpected rise in pending home sales was broad-based with all four regions showing gains.

A tax credit is now available to first-time home buyers so existing-home sales are likely to rise 7% to 5.51 million in 2009 from a expected total of 5.15 million this year, added Mr Yun.

One reason for the rise in pending home sales could be the fact that banks are driving down prices of repossessed home in a effort to improve sales.

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