Pending home sales made their first major improvement in October, beating even the most optimistic of outlooks.
According to a recent press release, the National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI) jumped 3.5 percent compared to September, to a reading of 109.3. Originally predicted to clock in at 106.0, the latest reading exceeds the revised prediction of 105.6. This puts the PHSI at its highest level since June.
Despite the impressive increase, the latest figures still lag behind last year’s levels. The October index was 0.6 percent below the same month in 2016, to be precise.
NAR Chief Economist Lawrence Yun noted that pending home sales in the South saw “a nice bounce back” after suffering the effects of dual hurricanes in August and September, which contributed greatly to the overall PHSI increase. Still, Yun said rapid price gains and low inventory levels continue to hold the index back.
“Last month’s solid increase in contract signings were still not enough to keep activity from declining on an annual basis for the sixth time in seven months,” said Yun. “Home shoppers had better luck finding a home to buy in October, but slim pickings and consistently fast price gains continue to frustrate and prevent too many would-be buyers from reaching the market.”
Adding to the frustration is the growing trend of people living in the same homes for longer periods of time, thereby tying up inventory over the course of several more years. According to data from the 2017 Profile of Home Buyers and Sellers, homeowners are typically living in their homes for 10 years — a survey record. Before 2009, home sellers typically lived in their homes six years before selling it.
“Existing inventory has decreased every month on an annual basis for 29 consecutive months, and the number of homes for sale at the end of October was the lowest for the month since 1999,” said Yun. “Until new home construction climbs even higher and more investors and homeowners put their home on the market, sales will continue to severely trail underlying demand.”
Regionally, pending home sales increased everywhere except the West, where the index fell 0.7 percent in October to 101.6 and is 4.4 percent below a year ago.
The greatest rebound was in the South, where the index gained 7.4 percent from September to 123.6, which is 2.0 percent higher than a year ago.
The Midwest posted a gain of 2.8 percent to reach a level of 105.8, but this was 0.9 percent lower than its reading last year.
Finally, the Northeast posted a small gain of 0.5 percent to 95.0, which is 1.9 percent behind last year’s reading.
Forecasts for the Future
Yun expects existing-home sales to finish out the year at around 5.52 million, up from 5.45 million in 2016, representing a growth of 1.3 percent. According to the NAR, between 5.0 and 5.5 million existing-home sales are considered normal for the current U.S. population.
He anticipates the national median existing-home price to increase by about 6 percent. In 2016, existing-home sales gained 3.8 percent and prices increased 5.1 percent.