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Pending Home Sales Down As Supply Dwindles

[Post Category: Industry News]

  • The pending home sales index from the National Association of Realtors dropped 0.8 percent month to month and is now 1.7 percent lower than May 2016.
  • The inventory crisis is worst on the low end of the market, where demand is highest.

Pending Home Sales Tumble in May for Third Straight Month

Fewer buyers signed contracts to buy existing homes in May, likely because they can’t find or afford what they want.

The pending home sales index from the National Association of Realtors dropped 0.8 percent month to month and is now 1.7 percent lower than May 2016. Expectations had been for a slight gain, but even April’s reading was revised lower.

“Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” said Lawrence Yun, chief economist of the Realtors. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”

The number of home sales that closed this spring was slightly higher than a year ago, but the lack of listings clearly held the market back. The supply of homes for sale at the end of May was down more than 8 percent from a year ago, and homes that were listed sold at the fastest rate on record.

The tight supply is pushing home prices higher, considerably faster than income growth. Low mortgage rates have not been much help in offsetting these big price gains, and in fact may be exacerbating the problem, especially if rates begin to rise as is widely expected.

The inventory crisis is worst on the low end of the market, where demand is highest. The number of starter and trade-up homes currently on the market is down 15.6 percent and 13 percent, respectively, compared with a year ago, according to Trulia, a real estate website. The inventory of premium homes has fallen 3.9 percent.

The supply situation has buyer confidence in the housing market dropping. Just over half of renters say they think now is a good time to buy, according to the Realtors. That is down from 62 percent one year ago. While about 80 percent of current homeowners think now is a good time to buy, they are not listing their homes for sale. This may have more to do with weakening affordability than anything else. They don’t want to sell if they can’t afford a move-up home.

 

 

 

US Pending Home Sales

The ongoing supply shortages that are propping up home prices in many metro areas caused pending home sales in May to slump for the third consecutive month, according to the National Association of Realtors. None of the major regions saw an increase in contract activity last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.8 percent to 108.5 in May from a downwardly revised 109.4 in April. The index is now 1.7 percent below a year ago, which marks the second straight annual decline and the most recent since November and December of last year.

Lawrence Yun, NAR chief economist, says it’s clear the critically low inventory levels in much of the country somewhat sidetracked the housing market this spring. “Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” he said. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”

The persistent housing shortages seen in several markets are most severe, according to Yun, in the lower price ranges. That’s very apparent when looking at the percent change in closings in May compared to a year ago. Sales of homes under $100,000 last month were down 7.2 percent from last year and up only 2.0 percent for those between $100,000 and $250,000. In higher price brackets, sales expanded incrementally all the way up to massive increases of 26.0 percent for homes priced between $750,000 and $1 million and even more for those $1 million and up (29.1 percent).

Weaker financial and economic confidence could also be playing a role in the slowdown in contract activity. NAR’s quarterly Housing Opportunities and Market Experience (HOME) survey, released earlier this week, found that fewer renters think it’s a good time to buy a home, and respondents overall are less confident about the economy and their financial situation than earlier this year.

“The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity,” said Yun. “Meanwhile, many prospective first-time buyers can’t catch a break. Prices are going up and there’s intense competition for the homes they’re financially able to purchase.”

Existing-home sales are forecast to be around 5.63 million this year, an increase of 3.2 percent from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 5 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.

“A much higher share of homeowners compared to a year ago think now is a good time to sell1, but until they do, sales will likely stay flat and low inventory will keep price growth moving swiftly,” said Yun.

The PHSI in the Northeast decreased 0.8 percent to 96.4 in May, but remains 3.1 percent above a year ago. In the Midwest the index was 104.5 in May (unchanged from April), and is 2.8 percent lower than May 2016.

Pending home sales in the South declined 1.2 percent to an index of 123.4 in May and are now 1.4 percent below last May. The index in the West subsided 1.3 percent in May to 98.6, and is now 4.5 percent below a year ago.

 

 


   

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