The prospects for home sales weakened
further in August, and the National Association of Realtors® (NAR) has
downgraded its sales forecast for the remainder of 2017. In what must be the
gloomiest report in some time, NAR announced its Pending Home Sales Index
(PHSI) slipped on a monthly basis for the fifth time in six months; the last increase
was 1.5 percent in June. NAR expects the
two Hurricanes that hit Texas, Florida, and Georgia to result in slower
activity going forward, pulling existing sales below 2016 levels.
The PHSI is a forward-looking
indicator based on signed contracts to purchase existing homes. NAR said the
measure retreated to 106.3, down 2.6 percent from both the July reading and
that of August 2016. It was also the
fourth month out of the last five that the index has failed to outpace its year
earlier levels. The August decline takes the index to its lowest level since it
posted at 106.1 in January of last year.
The actual PHSI numbers reported
today are far below even the most pessimistic expectations. Analysts polled by Econoday had forecast a
decline of 0.2 percent from the July reading.
The range of estimates ran from -0.6 percent to +1.2 percent.
Lawrence Yun,
NAR chief economist, says this summer's "terribly low supply levels" have
officially drained all of the housing market's momentum over the past year.
"August was another month of declining contract activity because of the one-two
punch of limited listings and home prices rising far above incomes," he said.
"Demand continues to overwhelm supply in most of the country, and as a result,
many would-be buyers from earlier in the year are still in the market for a
home, while others have perhaps decided to temporarily postpone their
search."
Yun sees little
relief from the housing shortages that continue to plague several areas and believes the housing market has essentially
stalled. There could be further complications from the hurricanes Harvey and
Irma. The former's damage to the Houston area is already showing up in the August
PHSI readings for the South, and Yun expects that will likely continue in the
months ahead. The temporary pause in
activity in Florida in the wake of Hurricane Irma will slow overall sales even
more in the South starting with the September pending sales report.
In light of the
above, Yun now forecasts existing-home sales to close out the year at around
5.44 million, down from his previous forecast of 5.49 million. The new number
is 0.2 percent lower than the 5.45 pace of sales last year, whereas an
increase, albeit slight, of 0.7 percent had been expected. He upgraded his estimate for appreciation, now
putting the median gain at around 6 percent rather than the 5 percent predicted
earlier. In 2016, existing sales increased 3.8 percent and prices rose 5.1
percent.
"The supply
and affordability headwinds would have likely held sales growth just a tad
above last year," Yun said. "But coupled
with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now
appear will fall slightly below last year. The good news is that nearly all of the missed
closings for the remainder of the year will likely show up in 2018, with
existing sales forecast to rise 6.9 percent."
The PHSI in
the Northeast fell 4.4 percent to 93.4, and is now 4.1 percent below a year
ago. In the Midwest, the index decreased 1.5 percent to 101.8, putting it 3.2
percent below the previous August.
Pending home
sales in the South retreated 3.5 percent to 118.8, down 1.7 percent year-over-year
and the West PHSI at 101.3, is down 1.0 percent and 2.4 percent from the two
previous periods.
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.
The index is based on a large
national sample, typically representing about 20 percent 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.