October 30, 2024
Pending home sales rose 7.4% in September to 75.8 after having risen 0.6% in August..
The National Association of Realtors chief economist, Lawrence Yun said,”Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices. Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”
Current homeowners are reluctant to put their homes on the market which would mean trading in their current 3.0-3.5% mortgage rate for a 6.5% rate. As a result, the supply of homes on the market for realtors to show their clients remains very low But going forward if the inflation rate continues to shrink and the Fed continues to ease monetary policy mortgage rates should decline. As rates decline more current homeowners should be willing to put their houses on the market. As supply increases prices will be relatively unchanged or even decline somewhat. And with continuing job gains and rising wages, consumer income should continue to climb. All of these factors should boost housing affordability between now and yearend. A median-income earning family today has 1.4% less income than is required to purchase a median-priced home. By yearend we expect them to have 10% more income than required. That has to boost both existing and new sales as we approach yearend.
We follow this particular indicator because it is a fairly good indicator of existing home sales a month or two later. Given the pickup in pending home sales, existing home sales should climb sharply in October and November.
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
NumberNomics
Charleston, SC
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