August 30, 2021

Pending home sales fell 1.8% in July to 110.7 after having declined 2.0% in June.  Pending home sales have hit a speed bump in the past couple of months, not because of any reduced demand stemming caused by higher prices, but because of a lack of supply for realtors to sell.   Builders are having a tough time finding enough bodies to hire, available lots on which to build, and higher prices on their cost of materials — lumber and copper in particular.

Lawrence Yun, NAR’s Chief Economist said, “The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers.  That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months.  He added that, “Homes listed for sale are still garnering great interest, but the multiple, frenzied offers – sometimes double-digit bids on one property – have dissipated in most regions.  Even in a somewhat calmer market, a number of potential buyers are still choosing to waive appraisals and inspections.”

We follow this particular indicator because it is a fairly good barometer of the change in existing home sales in the following month.  Based on the decline in this series we look for little change in existing home sales in August.

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