July marked the second highest reading in over a decade for pending home sales, with the Midwest being the only area to see a decline in contract activity during the month.
The Pending home Sales Index (PHSI), which tracks the progress of contract signings, rose 1.3 percent from June (109.8) to July (111.3). According to the National Associations of Realtors (NAR), this is the second highest reading this year after April (115.0).
The PHSI in the Northeast moved up 0.8 percent to 96.8 in July, now marked at 1.1 percent above last year. The Midwest index decreased 29. percent to 105.8 in July, now being 1.1 percent lower than July 2015.
The South’s pending home sales moved up 0.8 percent to an index of 123.9 last month and is now 0.4 percent higher than last July. The West increased 7.3 percent in July to 108.7 making it 6.2 percent above a year ago.
NAR Chief Economist Lawrence Yun said the rise in the West lifted the pending home sales in July. “The index in the West last month was the highest in over three years largely because of stronger labor market conditions. If homebuilding increases in the region to tame price growth and alleviate the ongoing affordability concerns, the healthy rate of job gains should support more sales.”
Residential construction data shows the size and costs of new homes have descended over the past year. Yun believes that is an early sign that homebuilders will shift from building larger and more expensive homes and focus on building homes for buyers in the mid to lower price tiers.
“More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale,” he said. “There’s little doubt there’d be more sales activity right now if there were more affordable listings on the market. There is a robust demand for single-family starter homes and town homes at an affordable price point for young buyers.”
Yun also believes the homeownership rate won’t move up from its over 50-year low without a boost from first-time buyers. Even with mortgage rate near all-time lows, first-time buyers involvement has yet to increase this year.