Decline in Home Sales Not Yet Concerning; More Homes Need to Be Built - NAR

The National Association of Realtors® (NAR) blamed higher interest rates for the slipping home sales numbers reflected in its pending home sales report.   The Pending Home Sales Index (PHSI) figures released today were down 1.3 percent from 110.9 in June to 109.5 in July.  The PHSI is a forward looking indicator based on contract signings.  Completed transactions are generally expected to follow within 60 days.

While recent contract signings are down, the July PHSI is still 6.7 percent higher than its level in July 2012, 102.6.  The index has remained above year-ago levels for the past 27 months.

Lawrence Yun, NAR chief economist, noted the uneven pattern of the index in the various geographic regions.  "The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown.  However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West," he said.  "More homes clearly need to be built in the West to relieve price pressure, or the region could soon face pronounced affordability problems."

The PHSI in the Northeast fell 6.5 percent to 81.5 in July but is 3.3 percent higher than a year ago.  In the Midwest the index slipped 1.0 percent to 113.2, remaining 14.5 percent above year-earlier figures. Pending home sales in the South rose 2.6 percent to an index of 121.5 in July, 7.7 percent higher than a year ago.  The index in the West fell 4.9 percent in July to 108.6, and is 0.4 percent below July 2012.

NAR expects existing home sales to increase 10 percent this year to about 5.1 million units and rise to approximately 5.2 million sales next year.  Due to inventory shortages prices are expected to grow nearly 11 percent from 2012 to 2013 and then moderate to a 5 to 6 percent increase in 2014 as increasing construction of new homes takes some pressure off of prices.

The PHSI is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales.  The index base of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined and, by coincidence a year which fell within the normal range of home sales - 5.0 to 5.5 million.