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Inventory shortages restrict growth in pending home sales

Impact to linger into 2016

Pending home sales barely moved in October as the housing market starts to flatline in the fall, the most recent report from the National Association of Realtors said.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, marginally increased 0.2% to 107.7 in October from an upwardly revised 107.5 in September and is now 3.9% above October 2014 (103.7).

This marks 14 consecutive months of year-over-year increases, but the news isn't all good.

Pending sales have plateaued this fall as buyers struggle to overcome a scant number of available homes for sale and prices that are rising too fast in some markets, Lawrence Yun, NAR chief economist, said.

And inventory shortages are expected to continue to impact the overall growth of the housing market next year.

The report added that while existing-sales are projected to expand next year, ongoing inventory shortages and affordability pressures from rising prices and mortgage rates will likely temper sales growth to around 3% (5.45 million) in 2016.

Additionally, home prices are expected to slightly moderate from a 6% increase in 2015 to 5% next year.

"Unless sizable supply gains occur for new and existing homes, prices and rents will continue to exceed wages into next year and hamstring a large pool of potential buyers trying to buy a home," said Yun.

Broken down, pending home sales in the Northeast grew 4.5% to 93.6 in October, and is now 6.8% above a year ago. In the Midwest, the index dropped 1.0% to 103.9 in October, but is still 3.3% above October 2014.

In the South, pending home sales fell 1.7% to an index of 118.1 in October and are now 0.3% below last October. The index in the West increased 1.7% in October to 106.2, and is 10.4% above a year ago.

"Contract signings in October made the most strides in the Northeast, which hasn't seen much of the drastic price appreciation and supply constraints that are occurring in other parts of the country," Yun said. "In the most competitive metro areas – particularly those in the South and West – affordability concerns remain heightened as low inventory continues to drive up prices."  

For added perspective, looking at the most recent report from the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new single-family houses in October 2015 beat expectations and came in at a seasonally adjusted annual rate of 495,000.

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