The Pending Home Sales Index,a forward-looking indicator based on contract signings, declined 2.3 percent to 106.8 in September from a slightly downwardly revised 109.3 in August but is still 3.0 percent above September 2014 (103.7). With last month’s decline, the index is now at its second lowest level of the year (103.7 in January), but has still increased year-over-year for 13 straight months.
Lawrence Yun, NAR chief economist, says a combination of factors likely led to September’s dip in contract signings. “There continues to be a dearth of available listings in the lower end of the market for first-time buyers, and REALTORS® in many areas are reporting stronger competition than what’s normal this time of year because of stubbornly-low inventory conditions,” he says. “Additionally, the rockiness in the financial markets at the end of the summer and signs of a slowing U.S. economy may be causing some prospective buyers to take a wait-and-see approach.”
“September’s seasonally adjusted pending home sales dropped to the lowest level since January, but that’s not necessarily a cause for concern, given that the U.S. economy slowed in the third quarter, as shown by the weak 1.5 percent GDP growth,” says realtor.com Chief Economist Jonathan Smoke. “Global weakness, financial market uncertainty and stock market declines all weighed on home sales, but housing fundamentals remain very strong and this could have just been a temporary pause in this year’s growth in sales.”
Despite contract activity softening from the more robust levels seen earlier this year, Yun believes the housing market will still likely be one of the brighter spots in the economy in coming months.
“With interest rates hovering around 4 percent, rents rising at a near 8-year high, and job growth holding strong – albeit at a more modest pace than earlier this year – the overall demand for buying should stay at a healthy level despite some weakness in the overall economy,” says Yun.
The PHSI in the Northeast fell 4.0 percent to 89.6 in September, but is still 3.9 percent above a year ago. In the Midwest the index declined 2.5 percent to 104.7 in September, but remains 4.3 percent above September 2014.
Pending home sales in the South decreased 2.6 percent to an index of 118.3 in September and are now 0.1 percent below last September. The index in the West inched back 0.2 percent in September to 104.4, but is still 6.6 percent above a year ago.
“Given the seasonality in home buying, the market should remain strong, but at this level, through the end of the year,” says Smoke. “The spring is poised to see a substantial uptick in demand based on the plans of would-be buyers, but the key question will be if there will be enough supply to fulfill it.”
Yun will present NAR’s 2016 economic outlook and forecast on Friday, Nov. 13 at the 2015 REALTORS® Conference & Expo in San Diego. Jonathan Corr, president and CEO of Ellie Mae, Inc., and Mark Zandi, chief economist with Moody’s Analytics, will join Yun to discuss changes in housing finance, the overall market and the economy. A news release highlighting the key takeaways of Yun’s forecast and the discussion will be sent in the afternoon around 2:30 p.m. EST.
For more information, visit www.realtor.org.