Pending Home Sales Keep Rising
According to the National Association of Realtors (NAR), national Pending Home Sales hit their highest level in 9 years in April.
The NAR Pending Home Sales Index rose in April by 3.4% over March. However, April 2015 was also 14% higher than April 2014, and that was the largest year-over-year increase since September 2006.
The Index has now increased it’s year-over-year numbers for eight consecutive months and is at it’s highest level since May 2006. All four major national regions of the US saw increases in April Pending Home Sales.
In related news, April was the second consecutive month in which projected sales for 2015 were over the 5 million mark, a 6.1% increase over 2014.
Foot Traffic is an indicator of future sales, as well as buyer demand. This is a measure of how many people are out looking at homes. Even though inventories are limited, this number remained unchanged from March.
Despite the continued increase in Pending Sales as well as Foot Traffic, home sales in April actually dropped 3.3% from March.
However, they remain 6.1% above April of 2014.
Part of the reason for the drop in sales could be attributed to homes taking longer to close.
However, the biggest factor remains a lack of inventory.
This is helping to push home values up faster, but it is also failing to meet the strong buyer demand that exists.
Right now, we are under a 5 month inventory of homes for sale.
Historically, a 6 month supply is considered normal.
According to Jonathan Smoke, Chief Economist for Realtor.com:
“Sales would be even higher if inventory was growing as quickly as demand, but instead we’ve had 32 straight months of the supply of existing homes on the market under 6 months,” he said.
“That’s why we’re seeing higher levels of price appreciation this year. That higher level of price appreciation is encouraging more people to consider buying and/or selling and levels of reported foot traffic by Realtors reinforce that. All this bodes well for continued momentum into May and June.”
NAR’s Chief Economist, Lawrence Yun, expects a rebound for home sales. However, he cautions that inventory still plays a key role to future gains:
“The housing market can handle interest rates well above 4 percent as long as inventory improves to slow price growth and underwriting standards ease to normal levels so that qualified buyers — especially first-time buyers — are able to obtain a mortgage.”
Pending Home Sales are indicators to future sales.
If you look at the most recent graphs for Pending Home Sales and Existing Home Sales, you will see that the Existing Sales trend the same way as Pending Home Sales, although there is typically a couple month lag.
This is attributed to the fact that Pending Home Sales will take 60-90 days to close, and thus become Existing Sales.
Based on the Pending Home Sales so far in 2015, along with the Foot Sales numbers, it is clear that buyer demand in strong in 2015.
It would also appear that the dip in home sales is an anomaly, and those numbers should be back on the increase.
Keep in mind, despite the dip from March to April, home sales are still up 6.1% over this time last year and have seen seven consecutive months of increases year-over-year.
Another possible explanation that could be contributing to the sales drop is people buying on a contingency of selling an existing home.
Perhaps they have to wait for a brand new home to be completed, and can’t sell their current home until that happens.
Or, they are selling their current home and trying to find the next home. With limited inventory, selections are fewer.
They may not be able to find a home that suits them. Or worse, they find homes they like, only to miss out because other buyers snatch them up before they can, or a bidding war breaks out.
Any of these situations could delay a Pending Home Sale from becoming an Existing Home Sale.
This is a possible contributing factor, but the bottom line primary issue is lack of inventory.
The word Bubble has been thrown out there.
But that is not what is happening. It is simply a case where demand far exceeds supply.
It would help if the disparity between supply and demand narrowed, but as of right now we are not heading for another bubble.
Lawrence Yun addresses this topic in the latest NAR video regarding Pending Home Sales.
(All of the video contains good information, but the part where he specifically addresses the “Is This Another Bubble?” question is towards the end, at just before the 3 minute mark):
Right now, it is important to fully understand the data and information that is available to see where the housing market really stands. You have to look beyond the headlines and see the numbers.
The key metric to keep an eye on going forward is the inventory levels.
If we can get inventory closer to a 6 month supply, then that will have a big impact on the market.
Values will continue to rise, but at a more sustainable rate.
If you are looking to buy a home, then make sure to visit my Pam Marshall Realtor website.
You can search the Charleston MLS, check out my home buyer videos, download home buyer guides, as well as have a list of homes for sale that matches your exact search criteria emailed to you and updated with the latest, hottest listings.
If you are thinking about selling, it is important to hire the right agent–even in this hot sellers market.
Find out more about what makes me the right agent to get your home sold at my Pam Marshall Realtor sellers page.
If you want to see the latest Charleston SC market stats, including the local Pending Home Sales numbers, then check out my Charleston SC Real Estate stats page.