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NAR’s Pending Home Sales Report Tells a Bigger Story

by James F. McClister

Contract signings are down late in the year but still above average.

NAR-pending-home-sales-median-price-index-growth

The latest Pending Home Sales Index report from the National Association of Realtors showed a slight dip in pending home sales in October. Still, levels remain healthy and indicative of overall improving economic conditions.

In NAR’s index, based on contract signings, pending home sales stumbled last month, falling 1.1 percent to 104.1 from September’s 105.3. Ultimately, the loss is negligible as pending sales maintain a strong 2.2 percent lead over 2013 levels, and remain well above the average index rating of 100 for the sixth straight month.

Additionally, increases to the median existing-home price for all housing types in October further demonstrate the robustness of the market. NAR reported that monthly median price growth has averaged 5.8 percent throughout 2014.

Same Story, Different Place

The story was much the same on the regional level, with NAR researchers recording several autumnal dips in pending sales around the country, including:

  • The PHSI crawling 0.5 percent up to 87.9 in the northeast.
  • The PHSI ebbing down slightly (o.6 percent) to 100.6 in the midwest – still above the 100 baseline.
  • The PHSI falling 1 percent to 118.3 in the south, but remaining well above the 100 average.
  • The PHSI tumbling 3.2 percent to 98.1 in the west.

A Step in the Right Direction

At a cursory glance, October’s modest contract signings are a tad disheartening, but NAR Chief Economist Lawrence Yun was quick to reassure homebuyers and sellers, claiming that signings still adhere to a healthy pace and have been for the past six months.

“In addition to low interest rates, buyers entering the market this autumn are being lured by the increase in homes for sale and less competition from investors paying in cash,” he said. “Demand is holding steady but would be more robust if it weren’t for lagging wage growth and tight credit conditions that continue to hamper those individuals looking for relief from rising rents.”

In 2013, median price growth nearly doubled the nation’s current rate, but Yun pointed out that this year’s slowed pace is actually a symptom of more sustainable growth.

“(The) healthier pace () has kept affordability in check for buyers in many parts of the country while giving more previously stuck homeowners with little or no equity the ability to sell,” Yun said.

Furthermore, rising home prices have injected the market with a new sense of confidence, particularly for sellers, who desperately need it. Harkening to NAR’s annual survey of homeowners and potential sellers, Yun mentioned that over the past year, the typical seller had lived in their home for a decade prior to selling – an all time high.

Looking forward, the national market should brace for additional declines in existing-home sales, especially if mortgage forgiveness isn’t extended by congress – as it’s likely to. Leveraging NAR data, Yun predicts that sales will fall below 2013 levels by year’s end to 4.9 million, but bounce back in subsequent years, moving to 5.3 million in 2015 and 5.4 million in 2016. Progressively relaxing lending standards and the recent push for universal wage increases promises to propel gains even further, drawing the nation even closer to a long-term balance.

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