Pending home sales rise in Oct against expectations

Pending home sales in the U.S. rose in October, contrary to expectations of a drop, according to a report by the National Association of Realtors.

The pending home sales index rose 10.4 percent to 89.3, based on contracts signed in October from 80.9 in September, the report stated.

Though the index remained 20.5 percent below the peak in October, the rise is reassuring as analysts expected a drop in sales for the second month due to persistent high unemployment rates and a drop in home prices due to the foreclosure crisis.

The surge in the US pending home sales index in October is the first piece of good news on the housing market for some weeks. But it doesn't alter our view that a weak housing rebound will continue to hold the wider economic recovery back, Paul Dales, an economist at Capital Economics, said.

The data reflects contracts and not closing, which generally occur a couple of months later.

The fact that those contracts were signed while some major banks halted all foreclosure sales is encouraging, Dales added.

It seems the impact of the foreclosure crisis was much more modest than anecdotal reports suggested and was more than offset by households starting to take advantage of low mortgage rates, he said.

Initial jobless claims rose more than expected in the previous week, according to a report by the Labor Department. The ADP National Employment Report on Wednesday indicated that private employment saw the largest gain in three years during November.

The uncertainty in the job market has kept many potential homebuyers away from making heavy investments into new houses.

High unemployment, tight credit conditions and widespread negative equity, however, mean that the upward trend in housing will be gradual, Dales said.

A return to more normal loan underwriting standards and removal of unnecessary underwriting fees for very low risk borrowers is needed, Lawrence Yun, the chief economist at NAR, said in a statement.

Recent loan performance data from Fannie Mae and Freddie Mac clearly demonstrates very low default rates on recently originated mortgages.

The housing market, though improving, will continue to remain a drag on the overall economic improvement for a little longer.