Pending home sales rose to the highest level in over two years last month according to the Pending Home Sales Index for July released by the National Association of Realtors® (NAR) this morning. The index was up 2.4 percent to 101.7 from 99.3 in June and was 12.4 percent higher than the 90.5 mark one year earlier.
The Pending Home Sales Index is a forward-looking indicator based on home purchase contracts signed. The contracts are generally expected to close within two months of their signing.
Lawrence Yun, NAR chief economist, said the index is at the highest level since April 2010, which was shortly before the closing deadline for the home buyer tax credit. "While the month-to-month movement has been uneven, more importantly we now have 15 consecutive months of year-over-year gains in contract activity," Yun said.
Yun noted that sales activity is actually being constrained by limited inventory, both homes actually listed for sale and the shadow inventory. The West in particular is suffering from an inventory shortage.
Pending home sales grew in every region except the West. The Northeast increased 0.5 percent to 77.0 in July and was 13.4 percent above the level in July 2011. Pending sales in the South were up 5.2 percent to 111.7, a 15.6 percent annual increase and the Midwest index grew 3.4 percent month-over-month and 20.2 percent on an annual basis to a current level of 97.4. The West slipped 1.7 percent in July to 109.9 but is still 1.3 percent higher than a year earlier.
NAR projects that existing-home sales will rise 8 to 9 percent in 2012, followed by another 7 to 8 percent gain in 2013. Home prices are expected to increase 10 percent cumulatively over the next two years.
"Falling visible and shadow inventories point toward continuing price gains," Yun said. "Expected gains in housing starts of 25 to 30 percent this year, and nearly 50 percent in 2013, are insufficient to meet the growing housing demand."