Pending home sales increase, but low inventory could cause headaches for buyers
The number: Pending home sales have rebounded after two straight months of declines, but challenges remain as the housing market enters the popular spring home buying season.
The National Association of Realtors’ pending home sales index rose 1.9% in March. Compared to a year ago, pending home sales are up 23%, although year-over-year comparisons reflect the onset of the coronavirus pandemic last year.
“The increase in pending sale transactions for the month of March is indicative of strong housing demand,” Lawrence Yun, chief economist of the National Association of Realtors, said in the report. “With mortgage rates still very close to their all-time low and a strong employment recovery underway, demand is likely to remain high.”
The index measures where contracts have been signed but the deal has not yet been completed. As a result, it is considered a forward-looking indicator of existing home sales.
What happened: The Northeast saw the strongest regional increase in contract signatures, with an increase of 6.1%. The West and South both saw higher levels of home buying activity, but pending home sales fell in the Midwest.
The National Association of Realtors now predicts that sales of existing homes will increase 21% in 2021 to 6.2 million units sold.
The big picture: The demand is there. Millennials are getting older, and as they get married and start families, many are looking for a home right now. Additionally, the effects of COVID-19 continue and demand for properties with more outdoor space and a dedicated home office is strong. It also doesn’t hurt that mortgage rates have fallen below 3%.
The problem is with the inventory. The supply of housing does not meet the demand. Much of this is because home builders maintained a slow pace of construction activity for many years after the Great Recession, resulting in a supply shortage. But existing homeowners have also stayed out of the market more than usual – some are likely dismayed at the health risks of COVID-19, while others fear they will be able to find housing after selling their homes.
Either way, low inventory levels will inevitably limit sales activity. And with home prices continuing to rise, many Americans are increasingly concerned about the health of the housing market.
What they say: “Today’s increase signals strong demand from home buyers and suggests that where buyers can find sellers, home sales will take place,” said Danielle Hale, chief economist at Realtor.com.
Market reaction: The Dow Jones Industrial Average DJIA,
and the S&P 500 SPX,
were both up Thursday morning.