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Positive Pending Homes Sales Data Comes With Caveat

home-keyMortgage contract signings began 2016 on a low note, falling to their lowest level in a year after hitting its highest average year in nearly a decade due to two pressing factors that are keeping buyers out of the market: inventory and home prices.

However, despite the rough start to the year, pending home sales recently rose to their highest level in seven months and are still higher than a year ago.

The National Association of Realtors (NAR) reported Monday that its Pending Home Sales Index rose 3.5 percent to 109.1 in February from a downwardly revised 105.4 in January and is now up 0.7 percent from 108.3 in February 2015.

The NAR noted that although the index has now increased year-over-year for 18 consecutive months, the annual gain last month was the smallest.


NAR Chief Economist Lawrence Yun said, "After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory. Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what's being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau."

Collingwood Managing Director Thomas Cronin said of the pending home sales report, “It seems that the key here, is the fact that this is the 18th straight month of improvement. Yes, we could use more supply, yes, we could use more new construction at the lower end yes, we would like rates to remain low. But at the end of the day, this has been a solid performance.”

Ten-X Chief Marketing Officer Rick Sharga was among the housing experts who were more cautious about celebrating the pending home sales report or calling it a comeback, saying “The year-over-year number is the one to pay attention to. Last year, March home sales fell,off dramatically after a very strong February. With pending home sales up a scant 0.7 percent from last year, it seems like March existing home sales may not give us much to get excited about.”

Sharga continued, “The dramatic increase in pending home sales from January to February probably has more to do with January numbers being extremely low (and revised downward for this report), and some delays in contract execution due to bad weather in the Northeast and Midwest, which both had significant month-over-month gains.”

Pending Home Sales February 2016

Source: National Association of Home Builders


Existing-home sales suffered last month due to the continuous imbalance of extremely low inventory levels and rapid home price appreciation.

The NAR reported that existing-home sales decreased 7.1 percent to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January. However, the report noted that despite last month's large decline, sales remain 2.2 percent higher than a year ago. Existing-home sales do not appear to be slowing down home prices appreciation. According to the NAR, the median existing-home price in February was $210,800, up 4.4 percent from last February's median price of $201,900. This marks the 48th consecutive month of year-over-year gains.

"Any further moderation in prices would be a welcome development this spring," Yun stated. "Particularly in the West, where it appears a segment of would-be buyers are becoming wary of high asking prices and stiff competition."

The NAR expects existing-homes sales this year to be around 5.38 million, up 2.4 percent from 2015. The national median existing-home price for all of this year is expected to increase between 4 and 5 percent.

Chief Economist of Realtor.com, Jonathan Smoke noted, "Low inventories and tight credit will limit the gains we will see in 2016. However, given the level of pent-up demand evident in web activity and stated buyer intentions for 2016, we should see this spring materialize as the busiest season of sales since 2006."

Click here to view the full pending home sales report released Monday.

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.

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