September 26, 2019

Pending home sales rose 1.6% in August to 107.3 after having fallen 2.5% in July, but having jumped 2.8% in June and 1.1% in May.   The upswing that began at the beginning of this year remains in place.  In the past year pending home sales have 1.6%.

Lawrence Yun, NAR chief economist noted that “It is very encouraging that buyers are responding to exceptionally low interest rates.”  He added that, ““With interest rates expected to remain low, home sales are forecasted to rise in the coming months and into 2020.  Unfortunately, so far in 2019, new home construction is down 2.0%. The hope is that housing starts quickly move into higher gear to meet the higher demand.

There is currently a 4.1 month supply of homes available for sale.  Realtors suggest that the supply of and demand for housing is roughly in balance when there is a 6.0-month supply.  We are not even close.  As price gains slow, homeowners may believe that further rapid appreciation has come to an end and be more inclined to put their house on the market.

On the demand side the National Association of Realtors publishes a housing affordability index that now stands at about 159.0.  What that means is that potential buyers have 59% more income than is necessary to buy a median priced home (compared to 14% in 2007).

Keep in mind, too, that the the average home stays on the market for just 29 days which compares to about 100 days when the NAR began collecting this statistic in 2011.  The NAR reports that 55% of homes that come on the market sell within a month.

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