- By David M. Kinchen
Pending home sales declined slightly in June but marked 14 consecutive months of year-over-year gains, according to the National Association of Realtors (NAR).
The Pending Home Sales Index (PHSI) — a forward-looking indicator based on contract signings — slipped 1.4 percent to 99.3 in June from a downwardly revised 100.7 in May but is 9.5 percent higher than June 2011 when it was 90.7, according to a July 26, 2012 report from the trade association. The data reflect contracts but not closings.
NAR chief economist Lawrence Yun said inventory shortages are a factor. “Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” Yun said. “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”
According to the Realtors Confidence Index, the buyer traffic index stood at 60 in June while the seller index was 41, which shows a large imbalance between buyer and seller interest. A value of 50 implies neutral market conditions; the disparity between buyers and sellers began to grow in early spring and has been in a particularly large imbalance for the past two months.
“Any bank-owned properties that have been held back in markets with inventory shortages should be released expeditiously to help meet market demand,” Yun said. “Housing starts will likely need to double over the next two years to satisfy the pent-up demand for both rentals and ownership.”
The PHSI in the Northeast fell 7.6 percent to 76.6 in June but is 12.2 percent higher than a year ago. In the Midwest the index slipped 0.4 percent to 94.4 in June but is 17.3 percent above June 2011. Pending home sales in the South declined 2.0 percent to an index of 106.2 in June but are 8.8 percent above a year earlier. In the West the index rose 2.6 percent in June to 111.5 and is 3.0 percent higher than June 2011.
Yun said there also have been delays in the closing process. “With record low mortgage interest rates, there has been a surge of refinancing on top of a higher level of home purchases, which has been creating delays recently in the closing process,” he said.
“In addition, there have been some delays with recent foreclosure sales as banks take steps to ensure there are no paperwork problems. This is causing an uneven performance in sales closings, which is likely to continue, but we also see notably higher levels of sales activity compared with a relatively flat performance in the preceding four years,” Yun said.
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Methodology: The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.