While nationwide inventory remains stiff, pending home sales increased 0.9% in July, rising for the second consecutive month, according to the National Association of Realtors. While the Northeast and Midwest posted monthly losses, sales in the South and West grew. Furthermore, all four U.S. regions saw year-over-year declines in transactions.
"Markets with outright or relative affordability, as is often found in the Midwest and Northeast, continue to attract homebuyers with flexibility who can prioritize low-costs over location," said Realtor.com Chief Economist Danielle Hale. "Meanwhile suburbs of major jobs centers are attracting buyers for whom proximity trumps cost considerations, driving competitiveness in sometimes pricey areas that offer larger homes, presumably for workers with less flexibility who are prioritizing space alongside a manageable commute."
While pending sales inched forward, the Pending Home Sales Index (PHSI) rose 0.9% to 77.6 in July. Year-over-year, pending transactions fell by 14.0%. An index of 100 is equal to the level of contract activity in 2001.
"The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers," said NAR Chief Economist Lawrence Yun. "Jobs are being added and, thereby, enlarging the pool of prospective home buyers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many. Interestingly, the West region experienced a meaningful price decline in the past year, and buyers are quickly returning as a result."
Pending Home Sales Regional Breakdown
The Northeast PHSI shrank 5.8% from last month to 63.2, a decrease of 20.2% from July 2022. The Midwest index fell 0.4% to 77.5 in July, down 16.0% from one year ago.
The South PHSI lifted 2.0% to 95.3 in July, declining 10.9% from the prior year. The West index improved 6.2% in July to 61.3, dropping 12.8% from July 2022.
"Pending home sales data are expected to continue largely treading water in July," said Hale. "If we see an uptick in signed contracts for existing homes, this would be in line with the July trend for new home sales, which are also based on contract signings (+4.4%). But unlike the market for new homes, which has recovered convincingly above last year’s lows (+31.5%), pending home sales continue to lag behind year-ago levels. Low inventories of for-sale homes are one of several factors hampering a more meaningful recovery."
Hale continued: "While builders are capturing a greater share of home sales, a lack of affordability resulting from high home prices and mortgage rates has dampened homebuyer demand. Recent rental trends, which spell relief for renters who have faced several years of soaring prices, could further diminish housing demand as protection from rent inflation is a less pressing incentive for potential first-time buyers."
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