August Pending Home Sales Follow Downward Trend

Pending home sales fell in August for the fifth time in six months as the full effects of Hurricanes Harvey and Irma begin to affect not only pending sales, but future existing home sales, the National Association of Realtors said yesterday.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell by 2.6 percent to 106.3 in August from 109.1 in July. The index is now at its lowest reading since January 2016 (106.1), is 2.6 percent below a year ago and has fallen on an annual basis in four of the past five months.

All four regions saw declines, particularly in the South, where pending home sales fell by 3.5 percent to 118.8 in August and are now 1.7 percent below a year ago. In the West, the index fell by 1.0 percent to 101.3 and declined by 2.4 percent from a year ago. The Northeast fell by 4.4 percent to 93.4 in August and by 4.1 percent from a year ago. In the Midwest, the index decreased by 1.5 percent to 101.8 and by 3.2 percent from a year ago.

“The slide in pending sales suggests existing home sales will fall during the next few months,” said Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. “The hurricanes will likely lead to further deterioration. The storms damaged homes, disrupted home buying and will delay closings for the next few months.”

However, Vitner noted mortgage applications for home purchases have not fallen “anywhere near as much as purchase contracts. Aside from low inventories, the fundamentals for home sales remain positive,” he said.

NAR Chief Economist Lawrence Yun said this summer’s “terribly low” supply levels have drained the housing market’s momentum over the past year. He said the housing market has “essentially stalled.”

“August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes,” he said. “Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search.”

Yun said further complicating any sales improvement in the months ahead is Hurricane Harvey’s damage to the Houston region, as well as Hurricane Irma’s impact on sales in Florida. NAR downgraded its existing homes forecast to 5.44 million.

“The supply and affordability headwinds would have likely held sales growth just a tad above last year, but coupled with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now appear will fall slightly below last year,” Yun said. “The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.”