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Homebuilder Stocks Stoked Over Data

The biggest increase in pending home sales in seven years gives the homebuilders a lift.

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The builders were stoked Tuesday as conditions and incentives sent pending home sales much higher than expected. The National Association of Realtors expects even greater pending sales activity in the months to come, but economists caution that not all of the pending sales are closing.

The pending home sales index rose 6.7% to 90.3 in April from 84.6 in March, the largest increase in more than seven years and the third consecutive monthly increase, according to the NAR. It was far better than an expected 0.5% increase and 3.2% higher than a year prior.

Pending sales, which indicate that a contract has been signed but the transaction hasn't been closed, got a boost from more affordable housing, low mortgage rates and the impact of the $8,000 first-time buyer tax credit, said Lawrence Yun, NAR chief economist, in a statement.

The news propped up housing stocks, sending the S&P Homebuilders Select Industry Index 3.2% higher.

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Pending home sales were rather strong -- a lot stronger than anticipated -- and it's consistent with most of the economic data that things are improving," says Peter Cardillo, chief market economist for Avalon Partners. "In this particular case, it's on the plus side, which is good."

It certainly looks good, agreed Brian Bethune, chief U.S. financial economist at IHS Global Insight, "but the actual existing-home sales haven't really done much, so that leads me to believe that perhaps people just aren't getting approved for mortgages or there are more delays going through the process."

Last week, the NAR reported that existing-home sales increased modestly in April to 4.68 million from a downwardly revised 4.55 million in March, roughly in line with expectations. All in all, existing-home sales, including single-family, townhomes, condominiums and co-ops, increased 2.9%, while single-family home sales rose 2.5%.

But it's hard to get a real grasp of the direction of things with such volatility. Existing-home sales fell 3.4% between February and March after rising 4.9% the month before that.

No Bottom for Housing

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Pending home sales have increased more consistently, climbing 3.2% between February and March and 2% from January to February.

One figure that economists have focused on, total housing inventory at the end of April, rose 8.8% to 3.97 million existing homes available for sale, which represents a 10.2.-month supply at the current sales pace.

The U.S. Department of Housing and Urban Development said last week that sales of new one-family houses in April, at 352,000, were up just 0.3% from the downwardly adjusted figure for March and slightly below expectations - news that sent home stocks falling.

"Mortgages are either taking longer to process or people just aren't getting approved," says Bethune. "So the gears aren't quite meshing the way they should from the pending sale to the close."

But nonetheless, pending home sales could continue to increase sharply. "Since first-time buyers must finalize their purchase by Nov. 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers," said NAR's Yun in the release on Tuesday.

"There's a lot of inventory, and no doubt that lending practices have tightened, and unless you have stellar credit you won't get approved for a mortgage," says Avalon Partner's Cardillo. "But there are a lot of people who are taking advantage; they do have good credit and are out there buying, and of course the credits that the government has given are helping."