Pending home sales have now fallen on an annual basis for eight consecutive months in August, according to the latest report from the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 1.8% in August to 104.2, down from 106.1 in July. With August’s decline, the index is remains 2.3% down.
NAR Chief Economist Lawrence Yun said that low inventory continues to contribute to the housing market slowdown.
“Pending home sales continued a slow drip downward, with the fourth month over month decline in the past five months,” Yun stated. “Contract signings also fell backward again last month, as declines in the West negatively impacted overall activity.”
“The greatest decline occurred in the West region where prices have shot up significantly, which clearly indicates that affordability is hindering buyers and those affordability issues come from lack of inventory, particularly in moderate price points,” Yun added.
“With prices having risen so quickly, many consumers were deciding to wait to list their homes hoping to see additional price and equity gains,” Yun continued. “However, with indications that buyers are beginning to pull out, price gains are going to decelerate, and potential sellers are considering that now is a good time to list and bring more properties to the market.”
Yun also pointed to year-over-year increases in active listings to illustrate a potential rise in inventory.
Cities experiencing an increase in listings in August 2017 and 2018 included Columbus, Ohio, Seattle-Tacoma-Bellevue, Wash., San Diego-Carlsbad, Calif., Providence-Warwick, RI-Mass. and Nashville, according to Realtor.com.
According to Yun, while rising rates are always a deterrent to potential buyers, it should not lead to a significant decline.
“We have two opposing factors affecting the market: the negative impact of rising mortgage rates and the positive impact of continued job creation,” Yun said. This should lead to future homes sales staying fairly neutral.”
Yun states as long as there is job growth, rising mortgage rates will hinder some buyers. However, job creation means second, or third incomes being added to households which gives consumers the financial confidence to purchase a home.
Yun forecasts existing home sales will decrease 1.6% to 5.46 million in 2018, and the national median existing home price, he predicts, will increase 4.8% in 2018.
The PHSI in the Northeast decreased 1.3% to 92.7 in August and is 1.6% lower than 2017. The Midwest index fell by 0.5% to 101.6, but is still 1.1% lower than this time last year.
Lastly, pending home sales in the South declined 0.7% to 121.3 but is still 1.3% higher than 2017. The index in the West retreated 5.9% to 89.1 and plummeted 11.3% below 2017.