Pending Existing Home Sales Highest in 5 Months but Will it Last?

By Mark J. Donovan

Pending sales on existing homes hit a 5 month high in March according to the National Association of Realtors (NAR). Much of this was surely due to the home purchasing tax credit expiring on May 1. So it begs the question, is this positive housing statistic a trend or a flash in the pan? Only time will tell.

I wouldn’t be surprised, however, if it is the latter, at least for the rest of 2010. With unemployment still at nearly at 10% (officially) and much higher (unofficially), and European financial concerns with Greece, Spain and Portugal putting a damper on the stock market, I’m hard pressed to see a sustained improving housing market. The likelihood could be even further reduced if the Fed needs to begin raising interest rates sooner than planned. The US Commerce Department recently reported that Americans saw a 2% increase in prices in just the first 3 months of 2010.

Housing Prices Have Probably Bottomed Out

Though I wouldn’t be surprised to see a slowdown in pending home sales for the remainder of 2010, or at least for the next several months, I suspect housing prices have bottomed out. There are many signs suggesting a slowly improving U.S. economy, and these factors will most likely offset the risk of further declines in housing prices. The only question mark in this hypothesis is how soon the government begins to turn off the stimulus spigots. If the government moves too fast in turning off the flow of stimulus money, this, along with all the other negative factors mentioned above, could potentially cause housing prices to drop further.

Again, only time will tell.