Pending Homes Sales Drop to 4-Month Low

Contract activity pulled back in April stoking fears that the housing recovery is faltering.

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After three consecutive months of gains, the number of Americans signing contracts to get the keys to a new home unexpectedly retreated in April, dampening optimism that a recovery in housing has finally taken hold.

The Pending Home Sales Index, a leading indicator that tracks contract signings but doesn't reflect actual sales, declined more than 5 percent in April according to a report released by the National Association of Realtors Wednesday.

Declines were worst in the South and West, which saw contract activity pull back about 7 and 12 percent respectively.

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Despite record-low interest rates, access to mortgage credit remains a considerable obstacle to would-be home buyers, experts say. Slowing labor market gains, key to growing and supporting housing demand, have made Americans wary of investing in a big-ticket purchase like a home.

Still, national numbers are more than 14 percent above levels reported in April 2011, an encouraging sign, according to NAR chief economist Lawrence Yun, who remains convinced that "[t]he housing recovery momentum continues."

Yun is also optimistic about recent gains in home prices, which he attributes to the "diminishing share of distressed properties" sold in recent months. Further price increases would help the 11 million Americans estimated to be underwater on their mortgages.

"A 5 percent national price gain means the number of underwater homeowners would fall to about 9 million," Yun said in a statement. "A 10 percent gain, say over the next two years, would reduce the underwater status to about 7 million households out of 75 million owner-occupied homes."

[Read: House Hunters Flocking to Foreclosures For Value.]

Due to a tightening in the number of properties for sale, home prices are projected to rise 2 to 3 percent this year and 4 to 5 percent in 2013, with some of the hardest hit markets—Miami and Phoenix for example—easily achieving double-digit price growth by the end of 2012.

"Housing market activity has clearly broken out," Yun said, cautioning that a one-month setback in the face of several months of gains does not fundamentally change the outlook for the housing market. "[The housing market] is on track to see the best performance since 2007."

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter.