Tax credit contributes to 5.3% rise in index of pending home sales

Supported by a tax credit, a pending home sales index rose a seasonally adjusted 5.3% in March and was up 21.1% compared with a year earlier, the National Assn. of Realtors said Tuesday.

The index tracks sales contracts on existing homes and is considered a good indicator of actual sales, which are recorded a month or two later at closing.

For March, sales contracts rose 12.7% in the South, 1.9% in the West and 1.2% in the Midwest. Contracts declined 3.3% in the Northeast from a month earlier.

“Clearly the home buyer tax credit has helped stabilize the market,” said Lawrence Yun, chief economist for the real estate lobbying group, in a statement. “In the months immediately following the expiration of the tax credit, we expect measurably lower sales.”

To qualify for the extended and expanded home buyer tax credit, a sales contract must have been signed by April 30 and the sale must close by June 30. Analysts expect the tax credit will also support contract signings in April.

In February, the pending home sales index rose 8.3%, compared with an earlier estimate of an 8.2% gain.

The strong results in February and March probably reflect an increase in demand before the credit expires, according to Barclays Capital Research.

“Looking ahead, the strength in pending home sales (which tend to lead closed sales by a month or two) supports our view that existing home sales will rebound over the spring, also buoyed by the forthcoming expiration of the tax credit,” according to Barclays.

Yun added that home sales will probably “become self-sustaining” in the second half of this year and into 2011 if jobs are added “at a respectable pace” and as buyers see stabilizing values.