Pending home sales rose slightly in September with substantial increases in both the West and Midwest, according to the National Association of Realtors® (NAR).
The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, increased 0.5 percent to 104.6 in September from 104.1 in August. However, year-over-year, contract signings dropped 1.0 percent, making this the ninth straight month of annual decreases.
Lawrence Yun, NAR chief economist, says that even though we are still seeing year-over-year declines, the latest monthly increase is a good, stabilizing trend. “This shows that buyers are out there on the sidelines, waiting to jump in once more inventory becomes available and the price is right,” he said.
Yun continues to say that a slowdown in pending sales is caused by a chronic lack of moderately priced-home inventory along with an affordability problem. But viewed through the lens of the last few decades, the current affordability climate is still favorable.
“When compared to the year 2000, when the housing market was considered very healthy and home sales figures were roughly equivalent, the affordability conditions were much lower compared to now,” Yun says. “So even though affordability has been falling recently, the demand for housing should remain steady.
“The general condition of the economy is excellent; it simply has not lifted home sales this year. Home prices are still rising, so people who are purchasing are still seeing wealth gains.”
In many high-demand markets, inventory continues to grow, and Yun notes year-over-year increases in active listings (data from realtor.com) in Denver-Aurora-Lakewood, Colo.; Columbus, Ohio; Seattle-Tacoma-Bellevue, Wash.; San Diego-Carlsbad, Calif.; and San Francisco-Oakland-Hayward, Calif.
With rising mortgage rates and high prices, conversations about the possible benefits of renting over buying have begun to pop up. However, Yun believes homeownership is still the path to long-term financial health.
“Excluding periods of subprime lending, homeownership has consistently led to wealth gains,” says Yun. “If people are willing to purchase a home within their budget, they will likely continue to accumulate equity.”
September pending home sales regional breakdown
The PHSI in the Northeast dropped 0.4 percent to 92.3 in September and is now 2.7 percent below a year ago. In the Midwest, the index rose 1.2 percent to 102.4 in September and is 1.1 percent lower than September 2017.
Pending home sales in the South fell 1.4 percent to an index of 119.6 in September; however, that is 3.3 percent higher than a year ago. The index in the West increased 4.5 percent in September to 93.1 and plunged 7.4 percent below a year ago.
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