March Pending Home Sales Edge Up

Pending home sales rose for the second consecutive month in March, but “unrelenting” inventory constraints kept overall activity below year ago levels, the National Association of Realtors reported yesterday.

The NAR Pending Home Sales Index, a forward-looking indicator based on contract signings, inched up 0.4 percent to 107.6 in March from a downwardly revised 107.2 in February. Even with last month’s increase in activity, the index declined on an annualized basis (3.0 percent) for the third straight month.

Regionally, an increase in the South offset declines in the West and Northeast. In the South, sales rose by 2.5 percent to 128.6 in March and by 0.3 percent from a year ago. Sales also increased in the Midwest, by 2.4 percent to 101.3 but fell by 6.0 percent from a year ago. In the West, sales declined by 1.1 percent in March to 94.7 and fell by 2.2 percent from a year ago; in the Northeast sales fell by 5.6 percent to 90.6 in March and fell by 8.1 percent from a year ago.

“Harsh winter weather and extremely lean inventories continue to restrain sales, particularly in the Northeast and West,” said Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C. “The lack of inventory is a real impediment to a pick-up in sales this spring, particularly in the West, where pending sales have fallen for six months in a row. With few existing homes on the market, new home sales are accounting for a rising share of overall sales. The bulk of new home construction is in the South and West.”

Vitner added rising mortgage rates “present another speed bump to stronger home sales and will likely drive more growth to the suburbs.”

NAR Chief Economist Lawrence Yun said contract activity is moving sideways and not breaking higher despite the strong job-creating economy. “Healthy economic conditions are creating considerable demand for purchasing a home, but not all buyers are able to sign contracts because of the lack of choices in inventory,” he said. “Steady price growth and the swift pace listings are coming off the market are proof that more supply is needed to fully satisfy demand. What continues to hold back sales is the fact that prospective buyers are increasingly having difficulty finding an affordable home to buy.”

Looking ahead, Yun said affordability will be a significant topic of discussion and driving factor of if overall activity can break out above year-ago levels. He said price appreciation in most markets continues to outpace incomes, and the recent uptick in mortgage rates to over a four-year high only adds to the budget constraints aspiring buyers are feeling this spring.

“Much of the country is enjoying a thriving job market, but buying a home is becoming more expensive,” Yun said. “That is why it is an absolute necessity for there to be a large increase in new and existing homes available for sale in coming months to moderate home price growth. Otherwise, sales will remain stuck in this holding pattern and a growing share of would-be buyers–especially first-time buyers–will be left on the sidelines.”