Pending Home Sales Rise Less Than Expected

Pending home sales in April rose above those in the previous period for the second month in a row.  The National Association of Realtors® said that contract signings in April increased 0.4 percent from those in March, sending the NAR's Pending Home Sales Index to 97.8 from 97.4.  The Index is 9.2 percent lower than in April 2013 when it was at 107.7.  Economists surveyed by Reuters expected a 1.0 percent increase.

The Pending Home Sales Index (PHSI) is a forward looking indicator of home sales.  Contracts counted in the index are generally expected to close as sales within about 60 days.

Lawrence Yun, NAR chief economist, expects a gradual uptrend in home sales. "Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective home buyers' confidence," he said. "An uptrend in closed sales is expected, although some months will encounter a modest setback."

Contract signings increased in two of the nation's regions but remain below April 2013 levels in all four.  The PHSI in the Northeast was 79.3, 0.6 percent higher than in March but 12.0 percent below a year ago. In the Midwest the index rose 5.0 percent to 99.2 but is 6.9 percent below April 2013. Pending home sales in the South slipped 0.6 percent to an index of 111.9 in April, 6.4 percent below a year earlier, and the index in the West was 88.4 in April, down 2.9 percent and 15.0 percent from the two earlier periods.

Based on what it called sub-par activity in the first quarter, NAR is projecting that 2014 existing home sales will be modestly below the nearly 5.1 million sales in 2013, but should be close to 5.3 million in 2015. The national median existing-home price is projected to grow between 5 and 6 percent this year, and in the range of 4 to 5 percent in 2015.

Yun projects the 30-year fixed-rate mortgage to trend up and average 5.5 percent next year. "The extent to which higher mortgage interest rates will impact housing affordability and sales depends on income growth, ongoing improvement in the labor market and any change to mortgage underwriting conditions," he said.

The PHSI 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. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.