Pending home sales index falls for first time in months, performs unequally across regions
Although pending homes (contracts signed) increased for the last five months, in June, they fell slightly (1.8 percent), remaining near May’s level. The Pending Home Sales Index (PHSI) is an indicator put out by the National Association of Realtors (NAR) who is quick to point out that May’s level was the highest in over nine years, so it is our assessment that there is no need to panic or get cynical about the market.
Further, the West and Northeast actually saw gains for the month, but were offset by larger declines in the Midwest and South. The PHSI is now 8.2 percent above a year ago, also making June the third highest reading of 2015.
NAR’s Chief Economist explains
Dr. Lawrence Yun, NAR Chief Economist, says although pending sales decreased in June, the overall trend in recent months supports a solid pace of home sales this summer. “Competition for existing houses on the market remained stiff last month, as low inventories in many markets reduced choices and pushed prices above some buyers’ comfort level.”
“The demand is there for more sales, but the determining factor will be whether or not some of these buyers decide to hold off even longer until supply improves and price growth slows,” added Dr. Yun.
He also notes that existing-home sales are up considerably from last year, despite the share of first-time buyers improving only modestly, giving credit for the boost to pent-up sellers realizing their equity gains from recent years.
“Strong price appreciation and an improving economy is finally giving some homeowners the incentive and financial capability to sell and trade up or down,” adds Yun. “Unfortunately, because nearly all of these sellers are likely buying another home, there isn’t a net increase in inventory. A combination of homebuilders ramping up construction and even more homeowners listing their properties on the market is needed to tame price growth and give all buyers more options.”
Regional performance varied wildly
The PHSI in the Northeast inched 0.4 percent to 94.3 in June, and is now 12.0 percent above a year ago. In the Midwest the index declined 3.0 percent to 108.1 in June, but is still 5.0 percent above June 2014.
Pending home sales in the South also decreased 3.0 percent to an index of 123.5 in June but are still 7.8 percent above last June. The index in the West increased 0.5 percent in June to 104.4, and is now 10.4 percent above a year ago.
The national median existing-home price for all housing types in 2015 is expected to increase around 6.5 percent to $221,900, which would match the record high set in 2006. Total existing-home sales this year are forecast to increase 6.6 percent to around 5.27 million, about 25 percent below the prior peak set in 2005 (7.08 million).
Why this time of year is tough to gauge
According to realtor.com Chief Economist, Dr. Jonathan Smoke, “This is a tricky time of year to assess housing trends as the housing market is very seasonal. The seasonal trend varies by market so a general interpretation of these numbers should be treated with skepticism.”
He adds, “The underlying data was a mixed bag: the Northeast and West had slight increases on the seasonally adjusted index while the South and Midwest experienced declines. Even more confusing is the fact that the non-seasonally adjusted rate actually increased 2.6 percent in June over May, and only the Northeast and West had declines in the nonseasonal index.”
Dr. Smoke concludes by noting, “Regardless of what reading you prefer, the level of sales remains high. You have to go back to 2006 to see better readings on both indices.”
Blog post via The Real Daily