Pending Home Sales Slip 10.6% in February
- Pending home sales decreased by 10.6% in February with all regions showing a decline.
- After eight consecutive months of year-over-year gains, pending home sales decreased by 0.5% from a year ago.
- The Pending Home Sales Index fell below 100 in the Northeast and West regions. An index of 100 is equivalent to the level of pending sales in 2001.
WASHINGTON (March 31, 2021) – Pending home sales dipped for a second straight month in February, according to the National Association of Realtors®. Each of the four major U.S. regions witnessed month-over-month declines in February, while results were mixed in the four regions year-over-year.
The Pending Home Sales Index (PHSI),* www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, dropped 10.6% to 110.3 in February. Year-over-year, contract signings fell 0.5%. An index of 100 is equal to the level of contract activity in 2001.
"The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory," said Lawrence Yun, NAR's chief economist.
"Only the upper-end market is experiencing more activity because of reasonable supply," he continued. "Demand, interestingly, does not yet appear to be impacted by recent modest rises in mortgage rates."
According to Yun, even with rising mortgage costs, rates are expected to remain relatively low at no more than 3.5% in 2021. He says the rates are still advantageous to both prospective buyers and to current homeowners who are contemplating refinancing.
Nationally, homes priced at above $250,000 have largely been driving home sales for the last several months. However, Yun indicates that even homes priced above $500,000 to less than $1 million are subject to the same low-inventory dilemma.
"Potential buyers may have to enlarge their geographic search areas, given the current tight market," Yun said. "If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price."
Realtor.com®'s Housing Market Recovery Index, which reveals metro areas where the market has recovered or even exceeded prior trends, showed Austin, Texas; Denver, Colo.; Riverside, Calif.; Portland, Ore.; and Phoenix, Ariz., achieved the most significant recovery as of March 6.
February Pending Home Sales Regional Breakdown
The Northeast PHSI fell 9.2% to 92.3 in February, a 3.9% dip from a year ago. In the Midwest, the index dropped 9.5% to 102.4 last month, down 6.1% from February 2020.
Pending home sales transactions in the South declined 13.0% to an index of 133.2 in February, up 2.9% from February 2020. The index in the West fell 7.4% in February to 96.9, up 1.9% from a year prior.
The National Association of Realtors® is America's largest trade association, representing more than 1.4 million members involved in all aspects of the residential and commercial real estate industries.
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*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.
Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales are not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues.
The index is based on a large national sample, typically representing about 20% 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 March will be reported April 22. The next Pending Home Sales Index will be April 29; all release times are 10:00 a.m. ET.