The National Association of Realtors has released a report on pending home sales data which shows that contracts for the purchase of new homes are at a three month high, potentially signaling some good news for the embattled housing market.
- The Pending Home Sales Index rose 0.5% after decreasing 1.9%.
- The gauge dropped 3.4% year over year (unadjusted) after slipping 2.6% in August.
- The pace is still slower than last year with affordability a persistent issue.
The data indicates that demand is high with people still trying to buy in the face of increased prices and mortgage interest rates, despite the recent slump in new home sales which unexpectedly dropped 5.5% this month to hit a two year low and an even worse decline in existing home sales which have dropped to a three year low. Construction of new homes has also declined.
Economists had forecast a 0.1% slump in contracts for home sales, with the new report showing unexpected growth. However, the amount of contracts is still 1% lower than September 2017.
"This shows that buyers are out there on the sidelines, waiting to jump in once more inventory becomes available and the price is right," said Lawrence Yun, chief economist for the Realtors. "The general condition of the economy is excellent, it simply has not lifted home sales this year. Home prices are still rising, so people who are purchasing are still seeing wealth gains."
Pending home sales in the Northeast dropped 0.4% last month and were 2.7% lower than this time last year. The Midwest pending home sales index rose 1.2% for the month but is also down from last year by 1.1%. Southern sales decreased 1.4% monthly but are up 3.3% annually, and Western homes have increased 4.5% monthly but are down 7.4% on a yearly basis, by far the greatest regional change and likely due to the increased cost of homes in the West.
Barriers to Market Entry
The housing market has suffered decline due to a recent shortage of available homes for sale. While that availability has improved, prices have increased on average along with mortgage rates, making it more difficult for buyers to enter the market and creating a market slowdown.
The average mortgage interest rate is now approximately 4.87%. According to Zillow, the average monthly mortgage payment is 15% higher than last year when factoring in higher interest rates and increased home prices.
NAR Chief Economist Lawrence Yun remained optimistic, stating that the data “shows that buyers are out there on the sidelines, waiting to jump in once more inventory becomes available and the price is right. Though affordability has been falling recently, the demand for housing should remain steady.”