Pending home sales slipped in August with a mixed regional performance but are higher than a year ago, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, declined 1.2 percent to 88.6 in August from 89.7 in July but is 7.7 percent above August 2010 when it stood at 82.3. The data reflects contracts but not closings.
Lawrence Yun, NAR chief economist, said the decline reflects an uneven market. “The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene in the closing weekend of August,” he said. “But broadly speaking, contract signing activity has been holding in a narrow range for many months.”
The PHSI in the Northeast fell 5.8 percent to 63.6 in August but is 1.3 percent higher than August 2010. In the Midwest the index declined 3.7 percent to 76.2 in August but is 8.2 percent above a year ago. Pending home sales in the South rose 2.6 percent to an index of 96.9 and are 7.6 percent higher than August 2010. In the West the index declined 2.4 percent to 108.1 in August but is 10.5 percent above a year ago.
Yun said the market is underperforming given a pent-up demand in household formation. “We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit – a factor in elevated levels of contract failures,” he said. “Based on the improving fundamentals of population growth, some job additions, rent increases and higher stock market wealth, we should be seeing existing-home sales closer to 5.5 million, but are expecting just over 4.9 million this year. The unnecessarily restrictive mortgage underwriting standards are attenuating the housing recovery and are a risk factor for the overall economy.”
Although economic growth as measured by the Gross Domestic Product is expected to remain positive, uncertainty is causing some consumer hesitation. “We need to remove the road blocks to the housing recovery for people who are trying to take advantage of excellent affordability conditions,” Yun added. “Unfortunately, some buyers also will face notably higher mortgage rates on jumbo loans because of a lack of competition in the banking industry.”