Pending home sales slipped in October after two months of solid gains. The National Association of Realtors® (NAR) said its Pending Home Sale Index (PHSI), a leading indicator of existing home sales, retreated 1.7 percent to 106.7 in October. The Index had gained an aggregate of 4 percentage points over the previous two months. The PHSI was up 4.4 percent from its reading in October 2018.
This month neither Econoday nor MarketWatch published analysts' forecasts for pending home sales.
Lawrence Yun, NAR's chief economist, noted the decline in inventory and a small rise in mortgage rates from the prior month to explain, in part, the October decline in contract activity. "While contract signings have decreased, the overall economic landscape remains favorable," Yun said. "Mortgage rates continue to be low at below 4 percent - which will attract buyers - employment levels are strong and many recession claims have dissipated."
"We still need to address and, more importantly, correct inadequate levels of inventory across the country," Yun said. "There is no shortage of buyers seeking homes, but a lack of available units continues to drag down the nation's housing market and overall economy." He added, "We risk a lingering shortage of sufficient inventory if homebuilding only continues at its current pace over the next 20 years, when the U.S. population is projected to increase by more than 40 million over this period. Clearly, home builders must step in and construct more housing."
Yun pointed out that markets with significant listings in the $250,000 price range are still seeing a lot of buyer activity. He cited Fort Wayne and Lafayette, Indiana; Pueblo, Colorado; Columbus, Ohio; and Rochester, New York as examples.
October's contract signings were lower than September in all regions except the Northeast, however all four retained a year-over-year edge. The PHSI in the Northeast was up 1.9 percent to 95.7 from September and was 3.0 percent higher than a year ago. In the Midwest, the index slid 2.7 percent to 101.4 but remained up 1.8 percent year-over-year.
Pending home sales in the South declined 1.7 percent to a 125.3 reading but gained 5.1 percent from the previous October. Signings in the West were down 3.4 percent to 91.9 but grew 7.5 percent on an annual basis.
The PHSI is a leading indicator of existing home sales and 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.