Purchase Contracts Dip in August
Pending home sales slowed in August, with all regions posting declines except for the West, according to the National Association of REALTORS®' Pending Home Sales Index, a forward-looking indicator based on contract signings. NAR says that fewer distressed sales and less investor activity most likely contributed to August's decline in contract signings.
The index slipped 1 percent in August, falling 2.2 percent below year-ago levels, NAR reports. However, the index was at 104.7 in August. Anything above 100 is considered an average level of contract activity, according to NAR.
"Fewer distressed homes at bargain prices and the acknowledgment that we're entering a rising-interest-rate environment likely caused hesitation among investors last month," says Lawrence Yun, NAR's chief economist. "With investors pulling back, the market is shifting more toward traditional and first-time buyers who rely on mortgages to purchase a home."
However, first-time home buyers have made up less of the market share in recent years, representing less than a third of all buyers each month for the past two years. Yun expects first-time buyers to gradually resurface, despite persistent tight credit conditions.
"The employment outlook for young adults is brightening, and their incomes finally appear to be rising," Yun says. "Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years."
Yun expects existing-home sales to strengthen in the second half of the year as inventory conditions improve. He expects existing-home sales to slip 3 percent overall and the median existing-home price to grow between 5 and 6 percent this year.
Here's a snapshot of the Pending Home Sales Index across the country in August:
- Northeast: The index slipped 3 percent to 86.5 but remains 1.6 percent above year-ago levels.
- Midwest: The index dropped 2.1 percent to 102.4 and is 7.6 percent below August 2013 levels.
- South: The index fell 1.4 percent to 117, holding steady compared to year-ago levels.
- West: The index increased 2.6 percent in August, the fourth consecutive month of gains, but remains 2.6 percent below year-ago levels.