Pending Home Sales Slide in February

Tight inventory continues to keep a lid on home sales.

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A house for sale, price reduced.
A house for sale, price reduced.

Persistently tight inventory hurt pending home sales again as contract signings slipped slightly in February, a industry report showed Wednesday.

[REPORT: Homeprice Gains Accelerating]

The Pending Home Sales Index fell 0.4 percent to 104.8 in February from a downwardly revised 105.2 in January, according to the National Association of Realtors. Existing-home sales—which represent closings—are still forecast to rise about 7 percent in 2013.

The drop in pending home sales comes on the heels of news that home prices rose again in January, a trend experts have credited to record low supplies of homes for sale. While tight inventory has fueled bidding wars and driven up home prices in many markets, it has also severely limited buyer choices resulting in a pullback in pending home sales numbers, the NAR report noted.

Although rising prices are bringing some would-be sellers back to the market, only more construction of new homes can solve the inventory issues, NAR chief economist Lawrence Yun said.

Though new construction has steadily risen from recession lows—the rate of new construction was almost 28 percent above levels reported this time last year, according to the Commerce Department—housing starts need to rise "at least 50 percent from current levels," Yun said in a statement.

[PHOTOS: Home Construction on the Rise]

But in order for more building to take place, builders need financing, an arduous process in recent years as banks and lenders have heightened credit standards, restricting the flow of capital to homebuilders.

"Most local home builders are small businesses and simply don't have access to capital on Wall Street," Yun said. "Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market."

Despite inventory issues dragging down pending home sales, contract signings are still at the second highest level in nearly three years, the NAR report noted. In addition, contract activity has been above year-ago levels for the past 22 months, adding further evidence that the housing recovery is taking hold.

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