A National Association of Realtors index based on pending sales of existing homes dipped 5.5 percent in December compared to December 2004, and slipped 3 percent from November 2005.

Pending sales have dropped steadily from a record index of 129.2 last August, the association reported, to 116.4 in December 2005.

Regionally, the Pending Home Sales Index increased 1.5 percent in the Northeast to 90.7 but was 11.1 percent below December 2004.

The index in the Midwest dropped 9.3 percent to a level of 105.8 and was 11 percent below December 2004. The index in the West fell 8.1 percent to 117.1 in December and was 11.8 percent lower than a year ago. In the South, the index rose 2.3 percent in December to 135.9 and was 4.1 percent above December 2004.

A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing, the association noted. An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing-home sales.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales, the association noted. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 closely parallels the level of closed existing-home sales in the following two months.

David Lereah, the Realtor trade group’s chief economist, said, “Changes in the overall direction of the housing market are akin to a large ship making course corrections – it takes some time for the driving factors to materialize as a change in the sales level.

“In many recent transactions we’re looking at a delayed effect of mortgage interest rates that peaked in November but are now lower than expected. Mortgage applications have trended up in recent weeks, so we shouldn’t be surprised to see pending home sales rise in the next couple months.”

Lereah said he expects the housing market to stay below last year’s record. “We’re going through a period of adjustment. As home sellers recognize a return to more normal rates of price growth, some that have been holding out for higher prices will be more willing to negotiate terms that are acceptable to buyers but still provide them a solid return on their investment.”

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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