Pending home sales fell on an annual basis for the 11th consecutive month in November, according to the latest report from the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 0.7% in November to 101.4, down from 102.1 in October. Notably, year over year, contract signings dropped 7.7%.
NAR Chief Economist Lawrence Yun said the current sales numbers don’t fully take into account other data.
“The latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates.”
According to Yun, while pending contracts have reached their lowest mark since 2014, there is no reason to be overly concerned and he predicts solid growth potential for the long-term.
That being said, In November, all four major regions sustained a drop when compared to one year ago, with the West taking the brunt of the decrease.
“The West crawled back lightly, but is still experiencing the biggest annual decline among the regions because of unaffordable condition,” Yun said.
Yun suggests that affordability challenges in the West are part of the blame for the drop in sales, noting home prices in the West region have risen too much, too fast.
“Land cost is expensive, and zoning regulations are too stringent. Therefore, local officials should consider ways to boost local supply; if not, they risk seeing population migrating to neighboring states and away from the West Coast,” Yun continued.
Unfortunately, Yun also indicated the latest government shutdown will harm the housing market.
“Unlike past government shutdowns, with this present closure, flood insurance is not available. That means that roughly 40,000 homes per month may go unsold because purchasing a home requires flood insurance in those affected areas,” Yun said. “The longer the shutdown means fewer homes sold and slower economic growth.”
According to the report, pending home sales slightly fell in all regions but the Northeast and the West in November. The South experienced the most pronounced decline.
However, Yun believes that there are good longer-term prospects for home sales.
“Home sales in 2018 look to close out the year with 5.3 million home sales, which would be similar to that experienced in the year 2000,” Yun said. “But given the 17 million more jobs now compared to the turn of the century, the home sales are clearly underperforming today. That also means there is steady longer-term growth potential.”
Cities experiencing the largest increase in listings in November 2017 and 2018 included San Diego-Carlsbad, California; Denver-Aurora-Lakewood, Colorado; Seattle-Tacoma-Bellevue, Washington; Columbus, Ohio; Providence-Warwick, Rhode Island and San Francisco-Oakland-Hayward, California, according to Realtor.com.
The PHSI in the Northeast moved forward 2.7% to 95.1 in November and is 3.5% lower than 2017. The Midwest index retreated 2.3% to 98.1 but is still 7% lower than this time last year.
Pending home sales in the South declined 2.7% to 115.7, decreasing 7.4% below 2017. Lastly, the index in the West rose 2.8% to 87.2, but dropped 12.2% from last year.