Wednesday, 20 of June of 2018

Economics. Explained.  

Pending Home Sales

March 28, 2018

Pending home sales rose 3.1% in February after having declined 5.3% in January.    The January drop was largely attributable to sales in the Northeast where the frigid cold snap the first two weeks of the month may have contributed to the region’s large decline.  The weather was still bad in much of the country in February, and even March is not looking so good.  However, the weather will eventually improve and home sales will resume their climb.

Lawrence Yun, NAR chief economist blamed it on a shortage of available homes for sale.  He said  “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.  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.”

The National Association of Realtors publishing a housing affordability index now stands at 163.0.  What that means is that potential buyers had 63.0% 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 increase in the 30-year mortgage rate to 4.5% and the modest increase in home prices.  However, it has not fallen more sharply because consumer income continues to climb.

Keep in mind, too, that the the average home stays on the market for just 37 days which compares to about 100 days when the NAR began collecting this statistic in 2011.  The NAR reports that almost one-half of homes that come on the market sell within a month.

At the same time the builders report  more traffic through their model homes than they have seen in a decade.

Thus, it is quite evident that the dropoff in pending home sales is a function of constrained supply  rather than potential home buyers backing away from the market.

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.

Stephen Slifer


Charleston, SC

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