April 27, 2017
Pending home sales retreated by 0.8% in March after having jumped 5.5% in February. This series tends to be rather volatile on a month-to-month basis.
Lawrence Yun, NAR chief economist said, “Sparse inventory levels caused a pullback in pending sales in March, but activity was still strong enough to be the third best in the past year. Home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range. In most areas, the lower the price of a home for sale, the more competition there is for it. That’s the reason why first-time buyers have yet to make up a larger share of the market this year, despite there being more sales overall.”
Housing remains quite affordable for middle income buyers. After peaking at 213.6 in January 2013 the housing affordability index has declined slowly and now stands at 160.6. What that means is that potential buyers had 60.6% more income than was necessary to buy a median priced home (compared to 14% in 2007). The housing affordability index has declined slightly in response to the recent run-up in the 30-year mortgage rate to 4.1% following the election. However, it has not fallen more sharply because consumer income continues to climb. Looking forward the extreme shortage of available homes for sale has caused home prices to rise more quickly — and climb more rapidly than the increase in income. This development seems to have occurred only in the past three months but what it suggests is that this series needs to be monitored closely in the months ahead.
This series on pending home sales is collected by the National Association of Realtors and represents contracts signed, but not yet closed, on existing home sales. Thus, it is both a leading indicator of existing home sales and housing market activity in general. Not all these contracts go to completion. The buyer may not qualify for a mortgage, the house may not appraise at a sufficiently high value, or the house may fail the buyer’s inspection. But the series is clearly indicative of changes in housing market activity.