February’s Dip in Pending Home Sales ‘Not a Significant Concern’

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Pending home sales dipped 1.0% in February compared with January to a score of to 101.9 on the National Association of Realtors’ Pending Home Sales index, sprinkling some doubt on economists’ recent forecasts calling for a strong spring home buying season.

Year-over-year contract signings fell 4.9%, making February the 14th straight month of annual decreases.

Regionally, contract signings inched up 0.5% in the West and 1.7% in the South but decreased 7.2% in the Midwest and 0.8% in the Northeast.

Lawrence Yun, chief economist for NAR, points out that the decrease was preceded by a solid gain the prior month.

“In January, pending contracts were up close to five percent, so this month’s one percent drop is not a significant concern,” Yun says in a statement. “As a whole, these numbers indicate that a cyclical low in sales is in the past but activity is not matching the frenzied pace of last spring.”

Yun says despite the growth in the West, the region’s current sales are well below the sales activity from 2018.

“There is a lack of inventory in the West and prices have risen too fast,” Yun says. “Job creation in the West is solid, but there is still a desperate need for more home construction.”

Some markets did, in fact, see an annual rise in active listings in February, with Denver-Aurora-Lakewood, Colo.; Seattle-Tacoma-Bellevue, Wash.; San Diego-Carlsbad, Calif.; Portland-Vancouver-Hillsboro, Ore.-Wash.; and Nashville-Davidson-Murfreesboro-Franklin, Tenn., leading the way, according to data from Realtor.com.

The recent dip in mortgage rates should help stimulate home sales in March.

Yun says he does not anticipate any interest rate increases from the Federal Reserve for the remainder of this year.

“If there is a change at all, I would say the Fed will lower interest rates in 2019 or 2020,” he says. “That would stimulate the economy and the housing market. But the expectation is no change at all in the current monetary policy, which will help mortgage rates stay at attractive levels.”

The recent slowdown in home price appreciation should also improve affordability and boost sales.

Currently, Yun forecasts existing-home sales this year to reach 5.30 million, a decrease of 0.7% compared with 2018.

The national median existing-home price will increase about 2.7%, Yun predicts.

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