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July’s decline in pending home sales proves the nation needs more housing inventory

The Pending Home Sales Index falls 2.5% to 105.6

The nation’s lack of housing inventory led to a decrease in pending home sales in July, pushing the index down 2.5%, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased to 105.6 in July, falling from June’s 108.3.

Contract signings compared to a year earlier fell 0.3%, reversing course from last month’s increase, NAR said.

The index revealed that activity in all four major regions worsened as the PHSI in the Northeast, South, Midwest and West declined year over year.

These are the PHSI changes for each region:

  • Northeast: Decreased 1.6 % to 93 and is 0.9% lower than July 2018
  • Midwest: Decreased 2.5% to 101 and is 1.2% lower than July 2018
  • South: Decreased 2.4% to 122.7 but is 1.4% higher than July 2018
  • West: Decreased 3.4% to 93.5 but is 0.3% higher than July 2018

Super-low mortgage rates have not yet consistently pulled buyers back into the market,” said Lawrence Yun, NAR chief economist. “Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.”

Earlier this month, The U.S. Census Bureau announced that construction spending during June 2019 was estimated at a seasonally adjusted annual rate of $1.29 trillion. This rate is 1.3% below the June 2018 estimate of $1.31 trillion, and now represents the largest decline since November of last year. 

Of that, residential construction spending was at a seasonally adjusted annual rate of $507.2 billion, which is 0.5% below the revised May estimate of $509.7 billion.

Yun says the housing market’s low inventory numbers will have a direct impact on the nation’s overall economy. The nation’s tariff wars are adding to the affordability problem by making some building supplies more expensive, he said.

“A boost to home building would greatly improve economic growth,” Yun said. “More free market prices on construction materials without government interference about where homebuilders have to get their supply will also help produce more and grow the economy.”

Yun now expects GDP growth to ease to 2.0% in 2019 and 1.6% in 2020. With slower economic growth, he says interest rates will remain low.

Although Yun believes home sales will get a short-term boost from lower mortgage rates, he also warns that existing home sales are likely to be flat at 5.34 million in 2019. Additionally, amid tight inventory conditions, he predicts the median price of existing home sales will continue increasing, but at a slower pace of 4% in 2019, to $269,000, and 3.3% in 2020, to $278,500. The U.S. median home price increased 4.9% in 2018 from a year earlier, a slower pace than 2017’s 5.7% annualized gain.

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