NAR Report: What Pending Home Sales Can Tell Us About the Market

by James F. McClister

Pending home sales increased for the month of May, but many first-time buyers are looking for more incentive to enter the market, according to NAR.

In May, pending home sales and inventory levels rose as mortgage rates continued their descent, according to the National Association of Realtors. The improvements are helping to further accelerate the national market’s recovery.

Referring to its Pending Home Sales Index, a predictive indicator based on contract signings, NAR pointed out several significant gains in the industry. The index itself rose by just over 6 percent in May, bringing the overall PHSI to 103.9. While industry professionals are optimistic about the increase, the PHSI remains 5.2 percent below May 2013 levels.

Still, NAR says that this most recent increase is the largest month-over-month gain since April 2010, and should been seen as a positive sign of growth and stability.

Increases Abound

While NAR researchers discovered PHSI increases in each of the four U.S. regions, the gains did happen uniformly. Some regions fared better than others:

  • The PHSI in the Northeast increased 8.8 percent in May, bringing the total figure to 86.3 – 0.2 percent above last year.
  • The PHSI in the Midwest increased 6.3 percent in May, bringing the total figure to 105.4 – still 6.6 percent below last year.
  • The PHSI in the South increased 4.4 percent in May, bringing the total figure to 117 – still 2.9 percent below last year.
  • The PHSI in the West increased 7.6 percent in May, bringing the total figure to 95.4 – still 11.1 percent below last year.

Two Steps Forward, One Step Back

Despite the gains being celebrated on both the national and regional level, NAR Chief Economist Lawrence Yun reminds professionals that the market is still in recovery mode.

Yun speculates that while sales should exceed an annual pace of five million homes, with growth being buoyed by low mortgage rates, overall growth in the second-half of 2014 will unlikely be enough to “compensate for the sluggish first quarter and will likely fall below last year’s totals.” He added that, already, sales for homes under $250,000 are 10 percent behind last year’s pace.

It is not a matter of the market being ill-position, but rather lacking crucial numbers to support heavy buying and investment. In May, Yun points out, only 27 percent of existing-home sales came from first-time homebuyers, saying many are being held back by low credit scores, cumbersome student loan debt and simply a lack of affordable properties.

To curb this damaging trend, Yun says the industry needs “solid income growth and a slight easing in underwriting standards…to encourage first-time buyer participation, especially as renting becomes less affordable.”

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