The group’s Pending Home Sales Index, a forward looking indicator based on contracts signed in April, rose 6.7%, to 90.3 from a reading of 84.6 in March, and is 3.2% above April 2008, when it was 87.5, the group said. Economists surveyed by Thomson Reuters (TRI) had expected the index would edge up to 85 from a reading of 84.6 in March. It was the biggest monthly jump since October 2001.

Pending home sales activity was greatest in the Northeast, where the index increased 32.6%, to 78.9, in April, 0.8% above a year ago. The only region that showed a decrease was the South, where the index declined 0.2%, to 93.0, 3.5% higher than a year ago. In the Midwest the index rose 9.8%, to 90.4, and is 11.1% above April 2008. In the West the index rose 1.8%, to 94.8, but is 2.9% below a year ago.

Very Favorable Conditions

Lawrence Yun, the group’s chief economist, said buyers are responding to very favorable market conditions, and while the total number of existing home sales is expected to improve, there will be sharp local variations. “The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish or decline,” Yun said in a news release.

Typically there is a one to two month lag between a contract and a done deal, so the index is a barometer for future existing home sales.

Paul Dales, U.S. economist for Capital Economics in Toronto, said in a report that if the April increase in pending home sales is reflected fully in existing home sales numbers, it would bring them to an annual rate of 5.1 million, a level last seen before the collapse of Lehman Brothers in September.

“The pending home sales index has now improved for three months in a row, adding to the evidence that housing activity is finding a floor,” Dales wrote. Nevertheless, even if existing home sales were to rise to 5.1 million, they would still be 30% below their peak. Accordingly, even if activity is finding a floor, it is at staggeringly low levels.”

Witness the number of high profile projects that have fallen victim to the downturn. Plans for a tower called St. Alphage’s in London’s financial district known as the City of London were canceled after the intended tenant, JPMorgan Chase (JPM), withdrew. And Dutch bank ING (ING) pulled the plug on Frank Gehry’s first British project, a $433 million waterfront development in Brighton. “There’s been a sharp downturn in new development activity over the last 12 months,” Damesick says. “A lot of projects that were in the pipeline are being reassessed.”

Take British Land’s skyscraper in the City. The 47 story tall, Richard Rodgers designed Leadenhall Building, popularly dubbed the Cheesegrater due to its resemblance to a certain kitchen accessory, was supposed to be completed in 2011. Instead, British Land (BLND.L) put the project on hold in August. At the time, then CEO Stephen Hester who now heads another troubled company, the Royal Bank of Scotland (RBS) conceded the economic environment had changed. “Today you would never start such a big project without a tenant already lined up,” he said. “The economics are not attractive enough.”

“Exceptional Cyclical Downturn”

Britain’s property firms face many of the same problems as those of its beleaguered banks: a dearth of credit, rapidly declining asset values, massive writedowns, and mounting job losses. In February alone, the country’s three biggest property companies, British Land, Hammerson (HMSO.L), and Land Securities (LAND.L) tapped investors for a total of $2.9 billion in cash in a series of rights issues to repair badly damaged balance sheets. “This is what I would call an exceptional cyclical downturn,” Land Securities CEO Francis Salway said in a conference call on Feb. 19 to announce the company’s $1.1 billion rights issue.

Finding tenants for commercial property in London is proving tough. London’s West End still has the world’s most expensive office space, at around $248 a square foot, compared with $98 per square foot in midtown Manhattan, according to CB Richard Ellis. Little wonder that the amount of vacant office space in central London has risen by 36.5% in the past 12 months as tenants shed staff or relocate, says global real estate firm Cushman Wakefield. Hoping to attract occupiers, some landlords are even offering two years rent free on leases of 10 years or more, the firm says.

The big property firms aren’t the only ones suffering. Related industries from construction to engineering and architecture are feeling the pinch. Recent data from Britain’s Office for National Statistics revealed an 8% decline in construction investment. And the Construction Products Assn. predicts the British construction sector will fall a further 9% in 2009, the biggest drop in three decades.

Tumbling Profits

Uxbridge based Galliford Try (GFRD.L), one of Britain’s biggest construction firms and homebuilders, has had to axe 400 staff and move to a four day week to cope with the slowdown. On Feb. 19 the company conceded it tumbled from a $48.4 million profit to a $54 million pretax loss for the six months ended Dec. 31, 2008, compared with the same period last year. CEO Greg Fitzgerald says current conditions in the homebuilding market are “the worst in generations.”

British architects would certainly agree. With the collapse in the commercial, residential, and retail property markets, architectural firms are suffering, and the slowdown is fast translating into layoffs. New data from the Office for National Statistics reveal architects are joining the ranks of the unemployed at a faster rate than any other occupation in Britain. Some 870 architects signed on to unemployment benefits in the last quarter of 2008, compared with just 135 in the same period the year before, an increase of 544%.

Even some of the profession’s biggest names have had to lay off staff. On Feb. 13, Norman Foster’s Foster & Partners announced plans to let go around a quarter of its 1,300 strong workforce and close two of its 17 offices around the globe. Jo Wright, managing partner at Bath and London based design firm FCB Studios, which won last year’s prestigious Stirling Prize, says her firm had to reduce its staff by 10%, to 135, in November. “As recently as August, I was using a headhunter, but the market turned so quickly,” she says. “All of our core work sectors are suffering.”

Few expect conditions to improve significantly until 2012. True, some projects such as Renzo Piano’s “Shard” set to be Britain’s tallest building are still going ahead. And for potential buyers and tenants, there’s one bright spot in the real estate crunch: “If you combine the fall in asset prices with the decline in the value of sterling, some properties are as much as 55% cheaper than they were just 18 months ago,” says Richard Barkham, group research director at Grosvenor Group, an international property firm privately owned by the Duke of Westminster. The only problem is finding investors with the cash on hand to take advantage.

Although prices rose from February to March, the national median existing home price for all housing types was $175,200, down 12.4% from March 2008, the National Association of Realtors (NAR) reported Thursday.

Sales of distressed homes made up about half of all sales, and about two thirds of those were foreclosures. Distressed homes also include short sales, in which properties are sold for less than the balance owed on the mortgage.

March sales fell 3% from February to a seasonally adjusted annual rate of 4.57 million properties. The February rate was revised downward to 4.71 million. Last month’s sales were 7% lower than in March 2008.

Sales are largely being driven by first time home buyers, who now make up more than half of transactions. Meanwhile, sales of higher priced homes have almost entirely stalled, in part because of the higher interest rates that accompany so called jumbo mortgage loans.

Lawrence Yun, NAR’s chief economist, says that the more modest ups and downs seen in home sales in recent months suggest the market appears to be stabilizing.

“We still need to see a consistent increase, and that’s not happening now,” he says. “Hopefully, by early this summer.”

A tax credit of up to $8,000 for first time home buyers and low interest rates are helping lure some buyers into the market. The average interest rate on a 30 year fixed mortgage is 4.80%, down from 4.82% last week, Freddie Mac said Thursday.

Home sales were higher than a year ago in Minneapolis, Northern Virginia, Las Vegas, Phoenix and most areas of California and Florida, where prices have taken large hits.

And in one promising sign, the inventory of unsold homes is beginning to shrink. Total housing inventory at the end of March fell 1.6% to 3.74 million existing homes available for sale.

Much of that inventory must be absorbed before prices will stabilize.

“Over the past five months, home sales haven’t changed all that much. They haven’t seen much life,” says Patrick Newport at IHS Global Insight.

“Lower prices aren’t stimulating sales. We still have a big problem in the credit market. The money banks are lending is going to refinancing, not to home purchases.”