The latest measure of home sales took another significant dip in July and things might actually turn out to be worse than the number suggests. That’s particularly bad news for investors and retirees who often have the vast majority of their net worth tied to their residence.

The National Association of Realtors reported Monday that pending home sales, which are homes where a contract has been signed between buyer and seller, fell 1.3% in July from the June rate.

On the bright side, that number was 14.4% higher than the year-ago rate. Although a year ago, home sales were depressed because a federal tax credit for home buyers had just ended.

But National Association of Realtors spokesman Walter Molony also cautioned that the pending home sales number compiled by the association’s research office also has lately been an unreliable predictor of actual home sales.

He said that while the two numbers pretty much run in tandem in the past, over the last few years -- as home prices continue to decline -- this has not been the case. 

“We attribute the divergence of the two numbers, pending home sales and existing home sales, to the high number of contract cancellations,” Molony told On Wall Street

He said, “There were a high number of contract cancellations in May and June. We hear of loans being denied by lenders, when the home assessments come in lower than the price that was negotiated by the buyer and seller.”

Molony said the problem has even shown up with newly built homes, where the valuation that lenders come up with “sometimes comes in below the builders’ costs!”

One reason for this is that banks, more risk averse now where mortgages are concerned, are requiring eight, nine or even 10 comparative home sale prices instead of the two or three that were standard in the past. “Often you can’t even find 10 real comps,” said Molony, “and we hear that in some cases banks are including heavily discounted foreclosed properties in that list.”

As a result, he said that the new pending home sales figure could turn out to be “a little rosier” than the next existing home sales figure that will be released on Sept. 21.

“That’s a harder number,” Molony said.




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