Contract Signings Start Spring Season on High Note
March 28, 2018
Pending home sales reversed course in February, increasing in most areas of the country even as a shortage of homes for sale and higher home prices struck many markets, the National Association of REALTORS® reported Wednesday.
NAR’s Pending Home Sales Index—a forward-looking indicator based on contract signings—increased 3.1 percent month over month in February to a reading of 107.5. Despite the uptick, the index remains 4.1 percent below a year ago.
“Contract signings rebounded in most areas in February, but the gains were not targeted enough to keep up with last February’s level, which was the second highest over a decade (at 112.1),” says Lawrence Yun, NAR’s chief economist. “The expanding economy and healthy job market are generating sizable homebuyer demand, but the minuscule number of listings on the market and its adverse effect on affordability are squeezing buyers and suppressing overall activity.”
Yun says the top wild cards for the housing market in the coming months will be how both buyers and potential sellers adjust to the increase in mortgage rates and home prices. Besides higher borrowing costs, home prices nationwide also are up 5.9 percent so far in 2018, according to NAR. Some homeowners who currently have a low mortgage rate may grow even more reluctant to sell out of fears of having to buy another home at higher borrowing costs and higher home prices.
“Homeowners are already staying in their homes at an all-time high before selling, and any situation where they remain put even longer only exacerbates the nation’s inventory crunch,” Yun says. “Even if new-home construction starts pick up at a faster pace this year, as expected, existing sales will fail to break out if these record-low supply levels do not recover enough to meet demand.”
Contract signings last month rose by the largest amounts in the Northeast, up 10.3 percent month over month, but still below 5.1 percent a year ago. Yun cautions that the Northeast region will likely see some volatility in contracts at least through March, due to multiple winter storms over the last few weeks that have likely stalled some contract signings there.
Updated: September 20, 2019