Washington D.C., USA: Pending home sales rose slightly in September and saw substantial increases in both the West and Midwest, according to the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.5 percent (vs 0.1% drop expected) to 104.6 in September from 104.1 in August. However, year-over-year, contract signings dropped 1.0 percent make this the ninth straight month of annual decreases.
Lawrence Yun, NAR chief economist, says that even though we are still seeing year-over-year declines, the latest monthly increase is a good, stabilizing trend. “This shows that buyers are out there on the sidelines, waiting to jump in once more inventory becomes available and the price is right,” he said.
Yun continues to point to the lack of inventory of moderately priced homes and affordability as factors restraining the housing market but when viewed through the lens of the last few decades, the current affordability climate is still favorable. “When compared to the year 2000, when the housing market was considered very healthy, and home sales figures were roughly equivalent and the affordability conditions were much lower compared to now. So even though affordability has been falling recently, the demand for housing should remain steady.”
While the economy, is thriving it has yet to have a substantial impact on the real estate market. However, Yun believes that may be about to change. “The general condition of the economy is excellent, it simply has not lifted home sales this year,” said Yun. “Home prices are still rising, so people who are purchasing are still seeing wealth gains.”
Yun pointed to year-over-year increases in active listings from data at realtor.com® to illustrate a potential rise in inventory. Denver-Aurora-Lakewood, Colo., Columbus, Ohio, Seattle-Tacoma-Bellevue, Wash., San Diego-Carlsbad, Calif., and San Francisco-Oakland-Hayward, Calif. saw the largest increase in active listings in September compared to a year ago.
With rising mortgage rates and high prices, conversations about the possible benefits of renting over buying have begun to pop up; however, Yun believes that homeownership is still the path to long-term financial health. “Excluding periods of subprime lending, homeownership has consistently lead to wealth gains,” said Yun. “If people are willing to purchase a home within their budget, they will likely continue to accumulate equity.”
September Pending Home Sales Regional Breakdown
The PHSI in the Northeast dropped 0.4 percent to 92.3 in September, and is now 2.7 percent below a year ago. In the Midwest, the index rose 1.2 percent to 102.4 in September and is 1.1 percent lower than September 2017.
Pending home sales in the South fell 1.4 percent to an index of 119.6 in September; however, that is 3.3 percent higher than a year ago. The index in the West increased 4.5 percent in September to 93.1 and plunged 7.4 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.
Why Markets Care About Pending Home Sales Also Called Pending Resales
Pending Home Sales report is released monthly, about 28 days after the month ends, by the National Association of Realtors (NAR).
It measures change in the number of homes under contract to be sold but still awaiting the closing transaction, excluding new construction.
Pending Home Sales is a leading indicator of economic health because the sale of a home triggers a wide-reaching ripple effect. For example, renovations are done by the new owners, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction.
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.
Pending Home Sales data is released about a week later than Existing Home Sales, but it’s more forward-looking as a contract is signed several weeks before the home is counted as sold.
The usual effect is that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.