Pending home sales in March continued their recent momentum, rising for the third straight month and remaining at their highest level since June 2013, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, climbed 1.1 percent to 108.6 in March from an upward revision of 107.4 in February and is now 11.1 percent above March 2014 (97.7). The index has now increased year-over-year for seven consecutive months and is at its highest level since June 2013 (109.4).
Lawrence Yun, NAR chief economist, says contract signings picked up in March as more buyers than usual entered this year's competitive spring market. "Demand appears to be stronger in several parts of the country, especially in metro areas that have seen solid job gains and firmer economic growth over the past year," he said. "While contract activity being up convincingly compared to a year ago is certainly good news, the increased number of traditional buyers who appear to be replacing investors paying in cash is even better news1. It indicates this year's activity is being driven by more long-term homeowners."
Yun expects a gradual improvement in home sales in the months ahead but says insufficient supply and accelerating prices could be a drawback to sales reaching their full potential.
"Demand in many markets is far exceeding supply, and properties in March sold at a faster rate than any month since last summer2," he said. "This in turn has pushed home prices to unhealthy levels – nearly four or more times above the pace of wage growth in some parts of the country. Simply put, housing inventory for new and existing homes needs to improve measurably to improve affordability."
The PHSI in the Northeast fell (1.5 percent) for the fourth straight month to 80.2 in March, but is still 0.6 percent above a year ago. In the Midwest the index declined 2.5 percent to 107.5 in March, but is 11.3 percent above March 2014.
Pending home sales in the South increased 4.0 percent to an index of 126.5 in March and are 12.4 percent above last March. The index in the West rose 1.7 percent in March to 103.7, and is now 15.6 percent above a year ago.
According to NAR's March Realtors® Confidence Index (RCI), sales to investors were 15 percent of sales in the first quarter of 2015, down from 19 percent in the first quarter of 2014. All-cash sales were 26 percent of sales during the first quarter of 2015, down from 33 percent in the first quarter of 2014.
2According to March's RCI, the median days on market was 52 days, the lowest since August 2014 (53 days).
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index 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.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
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