According to the National Association of Realtors (NAR), pending home sales continued to make impressive gains last month, rising to the highest level since April 2006. In May, more Americans signed contracts to purchase homes, as these pending sales reached their highest levels in over nine years.
Large gains in pending home sales in the Northeast and West helped to offset small decreases in the Midwest and South.
Here’s a more detailed look at how the Pending Home Sales Index performed regionally in May:
• Northeast: rose 6.3 percent to 93.9 last month and is 10.6 percent above a year ago.
• Midwest: fell 0.6 percent to 111.4 but remains 7.8 percent above year ago levels.
• South: dropped 0.8 percent to 127.8 but are still 10.6 percent above last May.
• West: rose 2.2 percent to 104.5 in May and are 13 percent above a year ago.
NAR’s Pending Home Sales Index rose 0.9 percent in May to 112.6 in May. The index is at its highest level since April 2006 when it was 113.7. The index has increased 10.4 percent over the past 12 months, putting it just below the April 2006 level—which was more than a year before the housing bust triggered the Great Recession.
Lawrence Yun, NAR’s chief economist states, “The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring. It’s very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive.” Although there are strong sales, Yun cautions that these are causing home prices to rise to an “unhealthy and unsustainable pace.”
Pending sales are an indicator of future purchases. Additionally, a one- to two-month lag usually exists between a contract and a completed sale.
Steady job growth, in conjunction with low but rising mortgage rates, has created greater urgency to buy homes. The gains reflect both a stronger economy but also the pressures to purchase a home before both prices and the cost of borrowing become potentially unaffordable. Despite Yun’s opinion, some other economists say that the job gains should be adequate to overcome the drag from higher rates.
Relatively low mortgage rates have assisted the real estate market, but the recent rate increases in recent weeks may possibly be causing more potential buyers to close transactions before higher rates inhibit their ability to purchase a home.
Average rates for a 30-year fixed-rate mortgage were 4.02 percent last week, up slightly from 4 percent in the prior week, according mortgage giant Freddie Mac. The average has risen from a 52-week low of 3.59 percent.
Chief economist at Pantehon Macroeconomics, Ian Shepherdson states, “We think the housing market can cope with slightly higher mortgage rates, taking home sales to new post-crash highs over the next few months.”
Median home prices climbed 7.9 percent over the past 12 months to $228,700, about $1,700 short of the July 2006 peak.
Call the attorneys at Khani & Auerbach (954) 921-1517 if you have any questions about this or any real estate matters.