Pending home sales fell in July, reversing course on two consecutive months of gains, according to the National Association of Realtors®. Of the four major regions, each reported a drop in contract activity, although the greatest decline came in the West.
The Pending Home Sales Index,* www.nar.realtor/pending-home-sales, a forward-looking indicator based on contract signings, decreased 2.5% to 105.6 in July, down from 108.3 in June. Year-over-year contract signings fell 0.3%, doing an about-face of the prior month’s increase.
“Super-low mortgage rates have not yet consistently pulled buyers back into the market,” said Lawrence Yun, NAR chief economist. “Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.”
Yun expects GDP growth to ease to 2.0% in 2019 and 1.6% in 2020, but growth predictions are somewhat uncertain due to trade tensions. With slower economic growth, interest rates will remain low. Though home sales will get a short term boost from lower mortgage rates, existing-home sales are likely to be flat at 5.34 million in 2019 given the level of sales in the first seven months of the year. Amid tight inventory conditions, the median price of existing-home sales will continue increasing, but at a slower pace of 4% in 2019, to $269,000, and 3% in 2020, to $278,500.
Low inventory numbers impact the nation’s overall economy, according to Yun. “A boost to home building would greatly improve economic growth,” he said. “More free-market prices on construction materials without government interference about where homebuilders have to get their supply will also help produce more and grow the economy. The housing industry cannot grow without more supply.”
July Pending Home Sales Regional Breakdown
All regional indices are down from June. The PHSI in the Northeast fell 1.6% to 93.0 in July and is now 0.9% lower than a year ago. In the Midwest, the index dropped 2.5% to 101.0 in July, 1.2% less than July 2018.
Pending home sales in the South decreased 2.4% to an index of 122.7 in July, but that number is 0.1% higher than last July. The index in the West declined 3.4% in July to 93.5 but still increased 0.3% above a year ago.
The National Association of Realtors® is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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*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% 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.
NOTE: NAR’s August Housing Minute video will be released on August 30, Existing-Home Sales for August will be reported September 19, and the next Pending Home Sales Index will be September 26; all release times are 10:00 a.m. ET.