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Pending Home Sales Rise 3.3% in July: Recovery on Track

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Pending home sales rebounded in July after declining in June, having risen now in four of the past five months.

The Pending Home Sales Index rose 3.3% to 105.9 in July from 102.5 in June — highest since August last year. The Pending Home Sales Index is a forward indicator based on contract signings.

The housing recovery seems to be gathering steam after a softer-than-expected spring selling season. The buyers seem to be back in the market with improvement in both the economy and employment and as interest rates remain low despite curtailing of bond buybacks by the Federal Reserve. Moreover, price growth continues to moderate after the rapid increases seen last year. The median home price increased 4.9% year over year in July, down from 13.1% gain last year.

A slew of positive data released this month raises hope that the housing market recovery might finally be back on track.

Housing starts surged to an 8-month high in July, growing 15.7% from the prior month to an annualized rate of 1.093 million units. The July increase was a relief from the decline witnessed in the past two months which also beat market expectations.

Building permits, a gauge of future construction, also bucked the previous trend. After declining in June, building permits grew 8.1% in July.

Sale of existing homes rose 2.4% in July, for the fourth consecutive month this year.

Homebuilder confidence data for August hit its highest level since January clearly indicating that builders are upbeat about their prospects for future sales.

New homes inventory for sale rose 4.1% to 205,000 units in July. This is a 6-month supply at the current sales pace — the highest so far this year — which suggests improvement in the supply picture.

However, sales of new single-family homes in the U.S. dipped 2.4% in July. The decline was below market expectations and quite a surprise considering that other housing indicators are on the rise which buoyed hopes that the housing market recovery might finally be back on track.

Kevin Kelly, chairman of NAHB, resonated that new-home sales is a “volatile metric that can fluctuate significantly from month to month”. According to Kelly, the higher inventory levels suggest that builders are improving their inventory anticipating improvement in new home sales through the balance of the year.

The rising inventory, low mortgage rates, improving job market, and moderating home price gains is expected to give homebuyers the much-needed confidence to buy more homes; possibly resulting in higher home demand in the second half of the year.

Homebuilder stocks rallied this month on the upbeat housing data. PulteGroup Inc. (PHM - Free Report) and Ryland Group, Inc. rose around 14% so far this month. KB Home (KBH - Free Report) , Lennar Corporation (LEN - Free Report) and Toll Brothers, Inc. (TOL - Free Report) were all up around 8% while D.R. Horton, Inc. (DHI - Free Report) rose 6.4% so far this month.

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