We called the August pending home sales report "the gloomiest in some time."  The best that can be said about the report released this morning for September is, at least it didn't get any worse.

The National Association of Realtors® (NAR) said that its Pending Home Sales Index (PHSI), which measures contracts for the purchase of existing homes, was at 106.0, matching the August reading, which was revised down from 106.3.  The PHSI is a forward-looking index which is expected to be mirrored in closed transactions over the following two months. 

The expectations were for a slight increase in the index. The consensus among analysts speaking to Econoday was for an uptick of 0.4 percent.  The range however was a wide one, -1.9 percent to +1.9 percent.

The last increase in the PHSI was in June, and it is now at its lowest reading since January 2015 and 3.5 percent below a year ago. It has fallen on an annual basis in five of the past six months.

Lawrence Yun, NAR chief economist, says the quest to buy a home this fall continues to be a challenging endeavor for many home shoppers. "Demand exceeds supply in most markets, which is keeping price growth high and essentially eliminating any savings buyers would realize from the decline in mortgage rates from earlier this year," he said. "While most of the country, except for the South, did see minor gains in contract signings last month, activity is falling further behind last year's pace because new listings aren't keeping up with what's being sold."   

Added Yun, "Hurricane Irma's direct hit on Florida weighed on activity in the South, but similar to how Houston has rebounded after Hurricane Harvey, Florida's strong job and population growth should guide sales back to their pre-storm pace fairly quickly." 

Prospective buyers at the lower end of the market, which includes many first-timers, continue to be squeezed by the supply constraints, Yun said.  In September, only 29 percent of existing home buyers were purchasing their first home; that matched the lowest share in exactly two years. Furthermore, existing sales were down notably on an annual basis in the price range below $250,000, but up solidly the higher up the price bracket.

"Buyers looking for a little relief from the stiff competition from over the summer may unfortunately be out of luck in the coming months," said Yun. "Inventory starts to decline heading into the winter, and many would-be buyers from earlier in the year are still on the hunt to find a home."  

The Index rose 1.2 percent to 94.5 in the Northeast, but remains 2.4 percent below the year-earlier level. In the Midwest the index climbed 1.4 percent to 102.9 but also lags the September 2016 reading, by 2.5 percent.

Pending home sales in the South decreased 2.3 percent to an index of 115.9 and are now 5.0 percent below last September. Contract signings in the West grew 1.9 percent to 102.7, but are 2.9 percent below a year ago. 

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.