Pending Homes Show First Annual Decline in Over 2 Years

Contracts for home purchases declined for the fourth consecutive month the National Association of Realtors® (NAR) said today.  NAR's Pending Home Sales Index fell 5.6 percent to 101.6 in September compared to August and is 1.2 percent below its value of 102.8 in September 2012.  This is the lowest the index has slipped since last December.  NAR also revised the August number down slightly from the original report of 107.7 to 107.6. 

The Pending Home Sales Index is a forward looking indicator based on contract signings.  These contracts are generally expected to result in closed sales over the following two months.

Higher mortgage interest rates as well as higher home prices are curbing buying power, and NAR chief economist Lawrence Yun said concerns over the government shutdown also played a role in the downturn.  "Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity," he said. "In addition, government and contract workers were on the sidelines with growing insecurity over lawmakers' inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases."

This, Yun said, was the first time in 29 months that pending home sales weren't above levels the previous year. "This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014. Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year."

The index was down on a month-over month basis in all four regions and below levels of a year earlier in two.  The Northeast dropped to 76.7 in September, 9.6 percent below August and 6.4 percent below a year ago. In the Midwest the index fell to 102.3, down 8.3 percent for the month but up 5.7 percent from September 2012.  Pending home sales in the South slipped 0.4 percent to an index of 116.2 in September, 2.0 percent above a year ago. The index in the West dropped to 97.3, down 9.0 percent and 9.8 percent from the two earlier periods

NAR projects the nation will finish the year with total existing-home sales of more than 5.1 million, up 10 percent from 2012, and are likely to hold even in 2014. The national median existing-home price is expected to rise 11 to 11.5 percent for all of 2013, but moderate to a 5 to 6 percent gain in 2014.

The Pending Home Sales Index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined.