National Association of Realtors

29 May 2016

Pending home sales rose for the third consecutive month in April and reached their highest level in over a decade, according to the National Association of Realtors®. All major regions saw gains in contract activity last month except for the Midwest, which saw a meager decline.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, hiked up 5.1 percent to 116.3 in April from an upwardly revised 110.7 in March and is now 4.6 percent above April 2015 (111.2). After last month’s gain, the index has now increased year-over-year for 20 consecutive months.

Lawrence Yun, NAR chief economist, says vast gains in the South and West propelled pending sales in April to their highest level since February 2006 (117.4). “The ability to sign a contract on a home is slightly exceeding expectations this spring even with the affordability stresses and inventory squeezes affecting buyers in a number of markets,” he said. “The building momentum from the over 14 million jobs created since 2010 and the prospect of facing higher rents and mortgage rates down the road appear to be bringing more interested buyers into the market.”

On the topic of mortgage rates, which have remained below 4 percent in 16 of the past 17 months1, Yun says it remains to be seen how long they will stay this low. Along with rent growth, rising gas prices — and the fading effects of last year’s cheap oil on consumer prices — could edge up inflation and push rates higher. For now, he foresees mortgage rates continuing to hover around 4 percent in coming months, but inflation could potentially surprise the market and cause rates to increase suddenly.

Adds Yun, “Even if rates rise soon, sales have legs for further expansion this summer if housing supply increases enough to give buyers an adequate number of affordable choices during their search.”

Following the housing market’s best first quarter of existing-sales since 2007 (5.66 million)2 and a decent increase (1.7 percent) in April, Yun expects sales this year to climb above earlier estimates and be around 5.41 million, a 3.0 percent boost from 2015. After accelerating to 6.8 percent a year ago, national median existing-home price growth is forecast to slightly moderate to between 4 and 5 percent.

The PHSI in the Northeast climbed 1.2 percent to 98.2 in April, and is now 10.1 percent above a year ago. In the Midwest the index declined slightly (0.6 percent) to 112.9 in April, but is still 2.0 percent above April 2015.

Pending home sales in the South jumped 6.8 percent to an index of 133.9 in April and are 5.1 percent higher than last April. The index in the West soared 11.4 percent in April to 106.2, and is now 2.8 percent above a year ago.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

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1 According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage has remained below 4 percent every month since December 2014 except for in July 2015 (4.05 percent).

2 Total existing-home sales, including single family and condo, were at a seasonally adjusted annual rate of 5.30 million during the first quarter of 2016.

* 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.

NOTE: Existing-Home Sales for May will be reported June 22, and the next Pending Home Sales Index will be June 29. NAR’s second quarter Housing Opportunities and Market Experience (HOME) survey — originally scheduled for June 15 — will now be released on July 13; all release times are 10:00 a.m. ET.