Contract signings in the Midwest and South in February drove pending home sales to their highest level in nearly two years. The National Association of Realtors® (NAR) said today that its Pending Home Sales Index (PHSI) rose 3.1 percent in February to 106.9. The January index level, after a slight downward revision, was 103.7. The February number is 12.0 percent above the level in February 2014.
According to NAR this is the sixth consecutive month that the index has increased compared to a year earlier and it has not been this high since June 2013 when it was 109.4. February was the 10th consecutive month that the index has been above 100 which is considered an average level of activity.
The PHSI is based on the number of contracts executive during the month to purchase existing homes. These contracts are generally reflected as completed sales within 60 days.
Lawrence Yun, NAR chief economist, says demand appears to be strengthening as we head into the spring buying season. "Pending sales showed solid gains last month, driven by a steadily-improving labor market, mortgage rates hovering around 4 percent and the likelihood of more renters looking to hedge against increasing rents," he said. "These factors bode well for the prospect of an uptick in sales in coming months. However, the underlying obstacle - especially for first-time buyers - continues to be the depressed level of homes available for sale."
According to NAR's monthly Realtors Confidence Index, the share of first time buyers rose slightly from 28 percent in January to 29 percent in February. It was the first increase for this consumer segment since last November.
"Several markets remain highly-competitive due to supply pressures, and Realtors are reporting severe shortages of move-in ready and available properties in lower price ranges," adds Yun. "The return of first-time buyers this year will depend on how quickly inventory shows up in the market."
NAR is forecasting that there will be around 5.25 million existing homes sold in 2015, a 6.4 percent increase from last year. In 2014 those sales declined by 2.9 percent. Existing home prices are projected to rise about 5.6 percent compared to a 5.7 percent increase in 2014.
The PHSI fell in both the Northeast and the South. The Northeast, most of which was hit by repeated severe snow storms throughout the month, saw its index fall 2.3 percent to 81.7. However the index remained 4.1 percent above its February 2014 level. Pending sales in the South slipped 1.4 percent from January to 120.2, 10.8 percent higher than a year earlier.
The losses in those two regions were more than offset by significant gains in the Midwest and West. In the former the PHSI jumped 11.6 percent to 110.81, and was 13.8 percent higher than the previous February. The index in the West climbed 6.6 percent in February to 102.1, the highest level since June 2013. It is now 18.3 percent above a year ago.
*The Pending Home Sales Index is a leading indicator based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. 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.