April 25, 2024
Pending home sales rose 3.4% in March to 78.2 after rising 1.6% in February.
The National Association of Realtors chief economist, Lawrence Yun said, “March’s Pending Home Sales Index – at 78.2 – marks the best performance in a year, but it still remains in a fairly narrow range over the last 12 months without a measurable breakout. Meaningful gains will only occur with declining mortgage rates and rising inventory.”
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 6.8% rate. As a result, the supply of homes on the market for realtors to show their clients is at a near record low level. But going forward if the inflation rate continues to shrink and the Fed begins to ease later in the year mortgage rates should decline. If builders take advantage of the increase in new home sales (because potential buyers cannot get what they want from the lack of existing home supply then, hopefully, prices will be relatively unchanged or even decline somewhat as supply increases. A 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 3% more income than is required to purchase a median-priced home. By yearend we expect them to have 25% more income than required. That has to boost both existing and new sales as we continue to move through 2024.
We follow this particular indicator because it is a fairly good indicator of existing home sales a month or two later. As a result, look for a existing home sales to continue to climb.
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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