Pending home sales drop 7.3% YOY on flat wages, short supply

Biggest drop and biggest miss of 2014 augurs ill for housing

Pending home sales dropped off in June, according to the National Association of Realtors, dropping 1.1% from May and falling 7.3% from June 2013 in the biggest decline in 2014 and the biggest miss of expectations in 2014 as well.

This comes a week after new home sales plummeted in June and May’s supposed 19% surge was revised out of existence.

The NAR pending home sales index fell 1.1% to 102.7 in June, from 103.8 in May.

The index at 100 is considered an average level of contract activity.

Click to enlarge the graphic.

Pictured: Recovery

The median existing home price continues to rise, up 4.3% from June 2013 to June 2014, but this is the slowest rate of appreciation since March 2012.

Lawrence Yun, NAR chief economist, says the housing market is stabilizing, but ongoing challenges are impeding full sales potential.

“Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved,” he said. “However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates.” 

“Housing activity has slowed markedly at the end of Q2. June housing starts fell 9.3%, with a 4.2% decline in permits, and new home sales fell 8.1%. Existing home sales rose 2.6% in June with gains in all four regions of the US, but this morning’s decline in pending home sales suggests declining activity levels in the pipeline as we head into the third quarter,” said Lindsey Piegza, chief economist with Sterne Agee. “Going forward, housing demand will depend on subsequent job and income growth. Labor market gains while positive, have centered around part-time, temporary and low-wage employment, insufficient to spark wage pressures. With home prices still rising rapidly, far outpacing income growth, many potential home buyers remain sidelined, unable to afford a home purchase.”

Yun said he ultimately expects a slight uptick in sales during the second half of the year.

“The good news is that price appreciation has decreased to its slowest pace since March 2012 behind much-needed increases in inventory,” he said. “With rents rising 4% annually, potential buyers are less likely to experience sticker shock and can make smart decisions on whether or not it makes sense to buy or continue renting.” 

The regional breakdown shows a dip in the South but a gain for the Midwest and a fractional gain for the West.

The index in the Northeast fell 2.9% to 83.8 in June, and is 3.2% below a year ago. In the Midwest the index rose 1.1% to 106.6, but remains 5.5% below June 2014.

Pending home sales in the South dipped 2.4% to an index of 113.8 in June, and is 4.3% below a year ago. The index in the West inched 0.2% in June to 95.7, but remains 16.7% below June 2014.

Yun forecasts existing-homes sales to be down 2.8% this year to 4.95 million, compared to 5.1 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5 and 6% this year and in 2015.

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