Pending Sales Fall; Yun Calls Prices “Exorbitant,” Buyer Competition “Unrelenting”
When pending home sales jumped 7.5 percent in October rather than the fractional increase expected, Lawrence Yun, chief economist for the National Association of Realtors® (NAR) viewed the change as defensive. Fast-rising rents and an anticipated increase in interest rates were pushing potential buyers in a position to do so to sign contracts to purchase a home sooner rather than later, he said.
The pending home sales report for November appears to validate his position. Signed contracts to purchase pre-owned single-family homes, townhouses, condos, and cooperative apartments fell back 2.2 percent compared to October and were down 2.7 percent from November 2020. NAR’s Pending Home Sales Index (PHSI) fell from 125.2 to 122.4. Pending sales are considered a leading indicator of existing home sales over the following one to two months.
Yun said, “There was less pending home sales action this time around, which I would ascribe to low housing supply, but also to buyers being hesitant about home prices. While I expect neither a price reduction, nor another year of record-pace price gains, the market will see more inventory in 2022 and that will help some consumers with affordability.”
Yun notes that housing demand continues to be high, explaining that homes placed on the market for sale go from “listed status” to “under contract” in approximately 18 days.
Analysts had expected a second month of increases in the PHSI. Those polled by Econoday forecasted an increase of 0.6 percent while Trading Economics posted a consensus estimate for a half-point gain.
“Buyer competition alone is unrelenting, but home seekers have also had to contend with the negative impacts of supply chain disruptions and labor shortages this year,” Yun said. “These aspects, along with the exorbitant prices and a lack of available homes, have created a much tougher buying season.”
Yun added that a countrywide surge of the omicron variant poses a risk to the housing market’s performance, as buyers and sellers are sidelined, and home construction is delayed.
Contracted sales declined in all four major regions from the October surge and only in the Midwest was there an annual increase. In the Northeast the PHSI dipped 0.1 percent to 99.4 in November, an 8.5% shortfall year-over-year. The Midwest, down 6.3 percent to 116.8 for the month, managed to remain 0.2 percent higher than in November 2020.
Pending home sales transactions in the South ticked 0.7 percent lower to an index of 148.2 and were 1.3 behind the index the prior November. Pending sales in the West slipped 2.2 percent to a PHSI of 105.5, down 4.6 percent on an annual basis.
The NAR’s PHSI 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. Existing home sales numbers for December will be released on January 27.