As higher mortgage interest rates continue to slow the market, pending home sales reflected such changes, dropping 1.3% to an index score of 109.5 in July from 110.9 in June. However, pending sales are 6.7% above July 2012, when the index was at 102.6.
July marks the 27th consecutive month of year-over-year gains for pending sales, according to the National Association of Realtors.
According to Lawrence Yun, chief economist at NAR, there is an uneven pattern throughout the country. “The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown. However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West,” he said.
“More homes clearly need to built in the West to relieve price pressure, or the region could soon face pronounced affordability problems,” Yun added.
In the Northeast, the PHSI dropped 6.5% to 81.5 in July, although it remains 3.3% above year-ago levels. The Midwest slipped slightly, down 1.0% to 113.2 in July; it remains 14.5% above July 2012.
Pending sales in the South were up 2.6% to an index of 121.5 in July and up 7.7% from July 2012. The index dropped in the West, falling 4.9% in July to 108.6 and down 0.4% from July 2012.
NAR expects existing-home sales to be up 10% for the year, totaling an estimated 5.1 million. Existing-home sales are projected to reach approximately 5.2 million next year.
The national median existing-home price is expected to rise nearly 11% in 2012 alongside ongoing supply and demand imbalances. Looking ahead to 2014, as rising construction takes some of the pressure off of home prices, NAR predicts price gains will moderate to 5-6% in 2014.
“It takes up to two months for pending sales to close which means this report points to trouble for final sales in both August and in September,” said analysts at Econoday. “Note that a big 5.8% jump in pending home sales in May translated to a big 6.5% jump in final sales of existing homes in July. But that was pending home sales data for May. The data for the subsequent two months have shown declines.”
"We should see existing home sales decline in the next couple of months since pending sales are usually a good leading indicator of existing home sales one and two months later," said Trulia (TRLA) Chief Economimst Jed Kolko. "But today’s pending home sales decline was modest, suggesting that rising rates aren’t going to clobber existing-home sales. Loosening credit and expanding inventory should help sales, partially offsetting the effect of rising mortgage rates."
According to Sterne Agee Chief Economist Lindsey Piegza, this morning’s report was particularly important given the recent decline in new home sales, as this is the first indication of demand for previously owned homes in the second half of the year.
“Clearly the weakness was not isolated to new construction in July. In a rising rate environment would-be-homebuyers were quick to take advantage of record low interest rates before borrowing costs increased. However, the bounce in activity at the end of the second quarter appears to be fleeting with housing market momentum still positive but waning. Going forward, any additional increase in financing costs will only dampen demand further without job creation and income growth to offset the cost,” she said.