August 29, 2024
Pending home sales fell 5.5% in July to 70.2 after having risen 4.8% in June.
The National Association of Realtors chief economist, Lawrence Yun said, “A sales recovery did not occur in midsummer, The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election.” He added that, “Current lower, falling mortgage rates will no doubt bring buyers into market.”
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 begins a protracted period of easing monetary policy in September, 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 3% 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. Home sales are constrained at the moment, but should pick up as the year progresses.
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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