The National Association of Realtors’ Pending Home Sales Index, an indicator of potential home sales based on contract signings, rose by 8.8% from July to August, or 24.2% year over year, to a record high of 132.8. (An index of 100 is equal to the level of contract activity in 2001.) This marks the fourth consecutive month of positive contract activity at the national level.
“Tremendously low mortgage rates—below 3%—have again helped pending-home sales climb in August,” says Lawrence Yun, NAR’s chief economist. “Additionally, the Fed intends to hold short-term fed funds rates near 0% for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtedly aid home buyers continuing to enter the marketplace. While I did very much expect the housing sector to be stable during the pandemic-induced economic shutdowns, I am pleasantly surprised to see the industry bounce back so strongly and so quickly.”
Despite record highs, Yun notes that not all of these signings will translate into final sales, as not all contracts lead to closings. He also cautions that without supply to meet demand, the state of the market will not be sustainable.
“Home prices are heating up fast,” Yun says. “The low mortgage rates are allowing buyers to secure cheaper mortgages, but many may find it harder to make the required down payment.”
At the regional level, each of the four major sales regions experienced month-over-month and year-over-year growth in pending sales transactions. The Northeast PHSI rose by 4.3% MOM in August to 117.1, or up 26% from one year ago. In the Midwest, pending-home sales rose 8.6% MOM and 25% YOY, to 124.5 in August. Pending-home sales in the South rose 8.6% MOM to 154.2 in August, up 23.6% YOY, and pending-home sales in the West rose 13.1% to 120.3, up 23.6% from one year ago.
According to Realtor.com’s Housing Market Recovery Index, the metro areas with the strongest market recoveries as of Sept. 19 include Seattle-Tacoma-Bellevue, Wash.; Las Vegas-Henderson-Paradise, Nev.; Boston-Cambridge-Newton, Mass.-N.H.; Denver-Aurora-Lakewood, Colo.; and Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.
“Pending-home sales in August hit a record high with strong monthly and annual gains,” Joel Kan, associate vice president of economic and industry forecasting for the Mortgage Bankers Association, says in response to this report. “… As home buyers continue their search this fall, one headwind remains the insufficient number of listings for sale. The competitive purchase market is putting upward pressure on home prices and reducing affordability. New construction has picked up significantly, but that pace may not be sustainable given the rise in builder material costs and the upcoming colder winter months. That is why more existing supply is also needed to keep up with demand.”
