National Association of Realtors
28 March 2018
Pending home sales snapped back in much of the country in February, but weakening affordability and not enough inventory on the market restricted overall activity compared to a year ago, according to the National Association of Realtors®.
The Pending Home Sales Index,* www.nar.realtor/pending-home-sales, a forward-looking indicator based on contract signings, grew 3.1 percent to 107.5 in February from a downwardly revised 104.3 in January. Even with last month’s increase in activity, the index is 4.1 percent below a year ago.
Lawrence Yun, NAR chief economist, says the housing market has gotten off to an uneven start so far in 2018. “Contract signings rebounded in most areas in February, but the gains were not large enough to keep up with last February’s level, which was the second highest in over a decade (112.1)1,” he said. “The expanding economy and healthy job market are generating sizeable homebuyer demand, but the miniscule number of listings on the market and its adverse effect on affordability are squeezing buyers and suppressing overall activity.”
Added Yun, “Expect ongoing volatility in the Northeast region at least through March. Although pending sales there bounced back in February following January’s cold weather-related decline, the multiple winter storms over these last few weeks likely put a chill on contract signings once again this month.”
With the start of the spring buying season in full swing, Yun believes that one of the top wild cards for the housing market in coming months will be how both buyers and potential sellers adjust to the steady climb in mortgage rates since late last year. Prospective buyers continue to feel the strain of swift price growth – up 5.9 percent so far in 2018 – and the higher borrowing costs will only add to the pressures placed on their budget. Meanwhile, more would-be sellers deciding to balk at listing their home for sale out of uneasiness of losing their low mortgage rate – especially if they refinanced in recent years – would not be good news for any alleviation of the ongoing supply shortages in much of the country.
“Homeowners are already staying in their homes at an all-time high before selling2, and any situation where they remain put even longer only exacerbates the nation’s inventory crunch,” said Yun. “Even if new home construction starts picking up at a faster pace this year, as expected, existing sales will fail to break out if these record low supply levels do not recover enough to meet demand.”
For the year, Yun now forecasts for existing-home sales to be around 5.51 million – flat from 2017. The national median existing-home price is expected to increase around 4.2 percent. In 2017, existing sales increased 1.1 percent and prices rose 5.8 percent.
The PHSI in the Northeast surged 10.3 percent to 96.0 in February, but is still 5.1 percent below a year ago. In the Midwest the index inched forward 0.7 percent to 98.9 in February, but is 9.5 percent lower than February 2017.
Pending home sales in the South rose 3.0 percent to an index of 125.7 in February, but are 1.5 percent lower than last February. The index in the West climbed 0.4 percent in February to 96.9, but is 2.2 percent below a year ago.
The National Association of Realtors® is America’s largest trade association, representing 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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1Last February’s index reading of 112.1 was the second highest since May 2006 (112.5).
2According to NAR’s 2017 Profile of Home Buyers and Sellers, the median tenure a homeowner stayed in their home before selling was 10 years (an all-time survey high since 1981).
*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.