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November 07, 2011

Pending Home Sales Drop 4.6 Percent
The National Association of Realtors reported on Thursday that pending sales of existing homes fell dramatically in September, the third straight month of declining contract signings. The group's Pending Home Sales Index, based on contracts to buy homes signed in September, dropped 4.6 percent from August to 84.5. The decline was particularly disappointing considering economists in a recent Reuters survey had projected an increase of 0.1 percent, on average.

Lawrence Yun, who serves as the NAR's chief economist, said that the index is still ahead of where it was a year ago, but cautioned that the housing market is still being hindered by several factors. Despite the economy adding some 2 million jobs over the past year, home sales have been held back by a combination of tighter lending standards, pessimistic consumer outlooks, and continued foreclosures which bring down property values.

The Pending Home Sales Index is a measure of how many Americans signed contracts to purchase a home in a given month. It is viewed as an indicator of sales in future months, as it typically takes a month or two after a purchase contract is signed before the sale closes. The index has been a less reliable predictor of sales in recent months, however, as there has been an uptick in contact cancellations. This usually occurs when an appraiser values a home at a lower amount than the sales price the buyer had agreed on, meaning that the buyer would be instantly underwater if he went ahead with the buy.

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