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Quick Hits: Foreclosures Sign of a Strong Housing Market?


Brief scrutiny of today's headlines.

Increased foreclosures have cut prices, making houses more affordable - and buyers are snapping up deals.

The National Association of Realtors says its index of pending home resales jumped 7.4% in August, the largest increase since October 2001 and the fourth this year.

The index doesn't track who is buying and why, but it appears vulture investors are taking advantage of bargains created by a rough housing market.

"What we're seeing is the momentum of people taking advantage of low home prices with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, DC region," Lawrence Yun, chief economist for the National Association of Realtors, said in a prepared statement.

The Pending Home Sales Index is a forward-looking indicator based on contracts signed. Closings, which generally take place a month or more after a sales contract is inked, are tracked in a separate report by the Washington, DC trade group.

The National Association of Realtors is scheduled to release totals September sales of existing homes on October 24. In August, existing home sales fell 2.2% to 4.91 million a year from 5 million in July. However, the sample size for pending home sales is smaller than the sample for existing-home sales and is therefore more volatile.

The Mortgage Bankers Association says US foreclosures rose at the fastest rate in almost 30 years to a record 2.75% of all mortgages in the second quarter. In September a report by RealtyTrac said foreclosures rose 26.7% in August from a year ago. California and Florida have been hit hard.

The S&P/Case-Shiller home-price index, released September 30, showed that home prices in 20 metropolitan areas fell 16.4% in July.

Homebuilders are struggling with excess inventory as the number of potential buyers dwindles. Last month, Lennar (LEN), the nation's second-largest homebuyer, reported its sixth straight quarterly loss. Lennar builds detached homes for first-time buyers and move-up buyers. The average price of the company's houses is about $297,000.

Lennar is second only to D.R. Horton (DRI) in sales and leads other major builders, including Pulte Homes (PHM).

The National Association of Realtors expects new home sales to total about 503,000 this year and 471,000 in 2009. Housing starts, including multifamily units, are likely to fall about 28% to 973,000 units this year and dip to about 843,000 units in 2009.
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