Affordability Constraints Hold Back Pending Home Sales

Investor activity at lowest point since 2009

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Pending home sales remained in a holding pattern in June, however they increased slightly, according to the Pending Home Sales Index from the National Association of Realtors.

Constricted supply and low affordability prevent a larger boost in home sales, even while mortgage rates linger near their all-time lows, according to the index.

National home prices increased by 5% annually in May, according to the S&P CoreLogic Case-Shiller Indices.

New home sales were up once again in June, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. In fact, they even reached an eight-year high.

“Until inventory conditions markedly improve, far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale,” NAR Chief Economist Lawrence Yun said.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched 0.2% to 111 in June, up from 110.8 in Mayand is now 1% higher than June 2015’s 109.9. With last month’s minor improvement, the index is now at its second-highest reading over the past 12 months, but is noticeably down from this year’s peak level in April 115.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be analyzed. Coincidentally, 2001 was the first of four consecutive record years for existing-home sales.

“With only the Northeast region having an adequate supply of homes for sale, the reoccurring dilemma of strained supply causing a run-up in home prices continues to play out in several markets, leading to the last two months reflecting a slight, early summer cool down after a very active spring,” Yun said.

“Unfortunately for prospective buyers trying to take advantage of exceptionally low mortgage rates, housing inventory at the end of last month was down almost 6% from a year ago, and home prices are showing little evidence of slowing to a healthier pace that more closely mirrors wage and income growth,” Yun said.

One noteworthy and positive development occurring in the housing market during the first half of the year is that sales to investors have subsided from a high of 18% in February to a low of 11% in June, which is the smallest share since July 2009, Yun said.

Yun attributes this retreat to the diminished number of distressed properties coming onto the market and the ascent in home prices, which have now risen annual for 52 consecutive months.

“Limited selection of homes at bargain prices is reducing the number of individual investors willing or able to buy,” Yun said. “This will hopefully open the door for first-time buyers, who made some progress last month but are still buying homes at a subpar level even as rents increase at rates not seen since before the downturn.”

Despite the slowdown from April’s peak high, existing-home sales are still expected to come in at 5.44 million this year, an increase of 3.6% from 2015, the highest annual pace since 2006.

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This entry was posted in Financing, Home Buying, Home Selling, Homeownership, Market Conditions, Mortgage and tagged , , , , , , . Bookmark the permalink.

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