Pending home sales pulled off a second straight gain in November, but just barely.  The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI), which is based on contracts for existing home purchases, rose 0.2 per percent to 109.5 compared to the October level of 109.3.  The November reading was the highest since June, and was higher year-over-year for the first time since then, beating the November 2016 level by 0.8 percent.

The gain was less than the 0.5 percent increase analysts polled by Econoday had expected, although their predictions covered a lot of territory.  The range varied from -1.0 to 5.0 percent.

Lawrence Yun, NAR chief economist, said, "The housing market is closing the year on a stronger note than earlier this summer, backed by solid job creation and an economy that has kicked into a higher gear.  However, new buyers coming into the market are finding out quickly that their options are limited and competition is robust. Realtors say many would-be buyers from earlier this year, stifled by tight supply and higher prices, are still trying to buy a home."  NAR also noted that 2018 existing-home sales and price growth are expected to slow, primarily because of the altered tax benefits of homeownership affecting some high-cost areas.   

One of the biggest questions heading into the new year, according to Yun, is if the depressed levels of available supply can improve enough to slow price growth and make buying a home more affordable. While last month's significant boost in existing sales was noteworthy, it did come with some concerns. Sales prices were up 5.8 percent - more than double wage growth - and the 3.4-month supply of homes on the market was the lowest since NAR began tracking that statistic in 1999.  

"The strengthening economy, and expectation that more millennials will want to buy, serve as promising signs for solid homebuying demand next year," Yun said, "while also putting additional pressure on inventory levels and affordability.  Sales do have room for growth in most areas, but nationally, overall activity could be slightly negative. Markets with high home prices and property taxes will likely feel some impact from the reduced tax benefits of owning a home" These include a lower cap on the mortgage interest deduction and a new cap on the amount of property tax that can be deducted.

Yun forecasts that existing-home sales will finish out this year up 1.7 percent from 2016 at around 5.54 million units. He also projects an annual increase of about 6.0 percent in the national median existing-home price.  He anticipates essentially no change (a decline of 0.4 percent) in existing sales (5.52 million) in 2018, and for price growth to moderate to around 2 percent.

The Northeast saw the greatest improvement in month-over-month activity. The PHSI for the region jumped 4.1 percent to 98.9, and is now 1.1 percent above a year ago. In the Midwest the index rose 0.4 percent for the month and 0.8 percent year-over-year to 105.8.

The other two regions did not fare as well.  Pending home sales decreased 0.4 percent in the South, to an index of 123.1, but remain 2.5 percent higher than last November. The index in the West declined 1.8 percent to 100.4, and lags November 2016 by 2.3 percent.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. 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.