WASHINGTON (September 29, 2014) – Pending home sales slowed modestly in August but contract signings remain at their second-highest level over the past year, according to the National Association of Realtors®. All major regions experienced declines except for the West, which rose for the fourth consecutive month.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 1.0 percent to 104.7 in August from 105.8 in July, and is now 2.2 percent below August 2013 (107.1). Despite the slight decline, the index is above 100 – considered an average level of contract activity – for the fourth consecutive month and is at the second-highest level since last August.
Lawrence Yun, NAR chief economist, says contract signings are holding steady and fewer distressed sales and less investor activity is likely behind August’s modest decline. “Fewer distressed homes at bargain prices and the acknowledgement we’re entering a rising interest rate environment likely caused hesitation among investors last month,” he said. “With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home.”
According to NAR’s Profile of Home Buyers and Sellers, 81 percent of first-time buyers in 2013 who financed their purchase obtained a conventional or FHA loan1. Overall, first-time homebuyers have been less prevalent from the housing recovery, representing less than a third of all buyers each month for the past two years2.
Yun says first-time buyer participation should gradually improve despite tight credit conditions and the inevitable rise in rates. “The employment outlook for young adults is brightening and their incomes3 finally appear to be rising,” he said. “Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years.”
The PHSI in the Northeast slipped 3.0 percent to 86.5 in August, but is still 1.6 percent above a year ago. In the Midwest the index fell 2.1 percent to 102.4 in August, and is 7.6 percent below August 2013.
Pending home sales in the South decreased 1.4 percent to an index of 117.0 in August, unchanged from a year ago. The index in the West rose for the fourth consecutive month (2.6 percent) in August to 102.1, but still remains 2.6 percent below August 2013.
Existing-home sales are expected to be stronger in the second half of the year behind improved inventory conditions, continuously low interest rates and slower price growth. Overall, Yun forecasts existing-homes sales to be down 3.0 percent this year to 4.94 million, compared to 5.09 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5 and 6 percent this year and 4 and 5 percent next year.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.
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142 percent obtained a conventional loan; 39 percent received financing through a FHA loan.
2According to the Realtors Confidence Index, July 2012 (at 34 percent) was the last time first-time buyers represented over a third of all buyers.
3According to the U.S. Census Bureau, the median household income for Americans ages 15-24 rose 10.5 percent in 2013.
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
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.
NOTE: Existing-home sales for September will be reported October 21, and the next Pending Home Sales Index will be October 27; release times are 10:00 a.m. EDT.