Pending Home Sales Second Highest in 10 Years
Despite some predictions that pending home sales would fall in July, they actually rose modestly to reach their second highest level in over a decade. The National Association of Realtors® reported that its Pending Home Sales Index (PHSI) was up 1.3 percent to 111.3 from a downwardly revised (from 111.0) 109.9 in June and was up 1.4 percent compared to July 2015.
The index had reached its highest level since February 2006 this past April when it hit 115.0. The July index was second only to that number. NAR pronounced the increase in purchase contracts as broad-based; only the Midwest failed to improve on its June numbers.
Analysts surveyed by Econoday had projected the index could be in the range of a 1.8 percent decline to a 1.4 percent gain. The consensus was a positive move of 0.6 percent.
NAR's index is a forward-looking indicator based on contract signings for the purchase of homes. Those transactions are generally expected to close within two months.
Lawrence Yun, NAR chief economist, says a sizable jump in the West lifted pending home sales higher in July. "Amidst tight inventory conditions that have lingered the entire summer, contract activity last month was able to pick up at least modestly in a majority of areas," he said. "More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale. There's little doubt there'd be more sales activity right now if there were more affordable listings on the market."
Adds Yun, "The index in the West last month was the highest in over three years, largely because of stronger labor market conditions. If homebuilding increases in the region to tame price growth and alleviate the ongoing affordability concerns, the healthy rate of job gains should support more sales."
As Yun noted, the PHSI in the West surged 7.3 percent in July to 108.7, and is now 6.2 percent above a year ago. The index in the Northeast rose 0.8 percent to 96.8, putting it 1.1 percent higher than a year ago. It also rose 0.8 percent in the South to 123.9, up 0.4 percent year-over-year. The Midwest was an outlier, falling 2.9 percent to 105.8, leaving it down 1.1 percent from a year earlier.
Yun noted there has been a downward trend in the size and cost of new homes over the last year and says this could be an early indication that builders are starting to focus more on properties for buyers in the middle and lower price tiers rather than on the larger and more expensive homes they have been building.
"Realtors® in several high-cost areas have been saying for quite a while that there is robust demand for single-family starter homes and townhomes at an affordable price point for young buyers," adds Yun. "The homeownership rate won't move up from its over 50-year low without a meaningful boost from first-time buyers, whose participation has yet to noticeably increase so far this year despite mortgage rates near all-time lows."
NAR forecasts that existing-home sales will finish the year at around 5.38 million units, a 2.8 percent increase from 2015 and the highest annual pace since 6.48 million homes sold in 2006. After accelerating to 6.8 percent a year ago, national median existing-home price growth is forecast to slightly moderate to around 4 percent.
By Jay Swanson - MortgageNewsDaily
Realtor.com prediction: Strong spring housing market
CHICAGO – March 4, 2016 – Recent housing and economic reports predict solid spring home sales, says Jonathan Smoke, realtor.com®'s chief economist. Smoke notes the following signs that suggest an upswing:
- Jobs: "Job creation – arguably the most important factor in housing demand – is moving apace," Smoke says. In January, the U.S. created 151,000 jobs; in February, it created 242,000. Unemployment is near 10-year lows. Smoke predicts that the latest employment growth should translate into a 3 percent boost to home sales this year.
- Home sales: Existing-home sales from January 2015 to January 2016 grew 11 percent. Sales are taking longer close due to new truth-in-lending mortgage rules that took effect last fall, but the pace of sales is growing. New-home sales have also grown solidly year-over-year, and the median price of new homes is declining as more builders offer affordable homes rather than catering only to the luxury market.
- Home prices: Prices are moving up and most of that has been attributed to the limited number of homes for sale. At the current pace, there's a four-month supply of homes on the market – much lower than the norms of six to seven months. "This is driving prices higher and encouraging consumers who hope to buy this year to get started as soon as possible," Smoke says.
- Mortgage rates: Low mortgage rates are improving homebuyer affordability – for now anyway. The 30-year fixed-rate mortgage averaged under 3.7 percent in the latest week, which offers buyers nearly 5 percent more buying power than they had at the end of 2015, Smoke notes.
But as Smoke notes: "not everything is rainbows and unicorns. The biggest negative trend impacting potential demand relates to the January and February declines in stock values, which have taken a toll on consumer confidence."
Also, a tight inventory of for-sale homes could also limit sales in the spring season. But for buyers who qualify, the low mortgage rates may prove a stronger motivator than too-few homes to consider.
Source: "The Numbers Are In: Yup, 2016 Is Off to a Good Start in Home Sales," realtor.com® (Feb. 26, 2016)
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