National Association of Realtors

31 October 2016

Pending home sales shifted higher in September following August’s notable dip and are now at their fifth highest level over the past year, according to the National Association of Realtors®. Increases in the South and West outgained declines in the Northeast and Midwest.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, grew 1.5 percent to 110.0 in September from a slight downward revision of 108.4 in August. With last month’s gain, the index is now 2.4 percent higher than last September (107.4) and has now risen year-over-year for 22 of the last 25 months.

Lawrence Yun, NAR chief economist, says a robust increase in the West and a healthy bump in the South pushed pending sales upward in September. “Buyer demand is holding up impressively well this fall with Realtors® reporting much stronger foot traffic compared to a year ago 1,” he said. “Although depressed inventory levels are keeping home prices elevated in most of the country, steady job gains and growing evidence that wages are finally starting to tick up are encouraging more households to consider buying a home.”

In last week’s report on September existing-home sales, according to Yun, there are many positive indicators showing that the housing market’s overall health continues to improve as we near the end of 2016. In addition to sales matching their third highest pace (5.47 million) since February 2007 (5.79 million), distressed sales — foreclosures and short sales — fell to their lowest share since NAR began tracking them in October 2008 (4 percent). Furthermore, sales to first-time buyers reached 34 percent, which matched the highest share since July 2012 and was up convincingly from September 2015 (29 percent).

“The one major predicament in the housing market is without a doubt the painfully low levels of housing inventory in much of the country,” added Yun. “It’s leading to home prices outpacing wages, properties selling a lot quicker than a year ago 2 and the home search for many prospective buyers being highly competitive and drawn out because of a shortage of listings at affordable prices.”

The PHSI in the Northeast fell 1.6 percent to 96.5 in September, but is still 7.7 percent above a year ago. In the Midwest the index declined modestly (0.2 percent) to 104.6 in September, and is now 1.0 percent lower than September 2015.

Pending home sales in the South rose 1.9 percent to an index of 122.1 in September and are now 1.7 percent higher than last September. The index in the West jumped 4.7 percent in September to 107.3, and is now 4.0 percent above a year ago.

Yun will present NAR’s 2017 economic outlook and forecast on Friday, Nov. 4 at the 2016 REALTORS® Conference & Expo in Orlando, Florida. Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, will discuss current economic conditions. A news release highlighting the key takeaways of Yun’s forecast and the discussion will be sent around noon ET.

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1 According to September’s Realtors® Confidence Index, the Realtors® Buyer Traffic Index registered at 59  in September, up from 53 in September 2015. An index above 50 is considered above average.

2 According to September’s Realtors® Confidence Index, the median days on market in September was 39 days, which is down considerably from September 2015 (49 days).

* The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.