WASHINGTON (March 28, 2016) — Pending home sales rose solidly in February to their highest level in seven months and remain higher than a year ago, according to the National Association of Realtors®. Led by a sizeable increase in the Midwest, all major regions except for the Northeast saw an increase in contract activity in February.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 3.5 percent to 109.1 in February from a downwardly revised 105.4 in January and is now 0.7 percent above February 2015 (108.3). Although the index has now increased year-over-year for 18 consecutive months, last month's annual gain was the smallest.
Lawrence Yun, NAR chief economist, says pending sales made promising strides in February, rising to the highest index reading since last July (109.8). "After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year1 and a modest, seasonal uptick in inventory2," he said. "Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what's being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau."
According to Yun, the one silver lining from last month's noticeable slump in existing-home sales was that price appreciation lessened to 4.4 percent, which is still above wage growth but certainly more favorable than the 8.1 percent annual increase in January.
"Any further moderation in prices would be a welcome development this spring," adds Yun. "Particularly in the West, where it appears a segment of would-be buyers are becoming wary of high asking prices and stiff competition."
Existing-homes sales this year are forecast to be around 5.38 million, an increase of 2.4 percent from 2015. The national median existing-home price for all of this year is expected to increase between 4 and 5 percent. In 2015, existing-home sales increased 6.3 percent and prices rose 6.8 percent.
The PHSI in the Northeast declined 0.2 percent to 94.0 in February, but is still 12.6 percent above a year ago. In the Midwest the index shot up 11.4 percent to 112.6 in February, and is now 2.5 percent above February 2015.
Pending home sales in the South increased 2.1 percent to an index of 122.4 in February but are 0.4 percent lower than last February. The index in the West climbed 0.7 percent in February to 96.4, but is now 6.2 percent below a year ago.
The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
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1 According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.66 percent in February — the lowest since April 2015 at 3.67 percent.
2 Total housing inventory at the end of February increased 3.3 percent to 1.88 million existing homes available for sale, but is still 1.1 percent lower than a year ago (1.90 million).
* 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: NAR's 2016 Vacation and Investment Homes report will be released April 6, Existing-Home Sales for March will be reported April 20, and the next Pending Home Sales Index will be April 27; release times are 10:00 a.m. ET.