The Home Buyer's Korner

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April 2nd, 2015

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Pending Home Sales for February

Homes Sales

February proved to be a record month for contracts signed to buy previously-owned homes and hit is highest numbers since June 2013. The index is at its highest level since June 2013, when the measure stood at 109.4 and surpassed most housing economists’ expectations. Much of the good news came from the Midwestern and Western regions, as reported by the National Association of Realtors.

Pending contracts for existing homes varied by region in February, with gains in the Midwest and West offset by declines in the Northeast and South. The index tracking pending contracts in the Northeast fell 2.3 percent in February from January, while the Southern index declined by 1.4 percent. The Western region’s index climbed 6.6 percent in February to its highest level since June 2013, as the Midwest index jumped 11.6 percent in February.

On a year-over-year basis, all regions of the United States increased contract signings in February: the Northeast by 4.1 percent, South by 10.8 percent, Midwest by 13.8 percent, and West by 18.3 percent.

The National Association of Realtor’ Pending Home Sales Index tracks contract signings, not closed sales. The rising number of signed contracts for previously-owned homes suggests that as prices moderate, consumers are getting back into the market and the Pending Home Sales Index is considered a more timely pulse of the market than other reports, because it’s forward-looking and based on contracts signed rather than closed transactions. Closings generally come one to two months after a contract is signed. The numbers provided showed a rise of 3.1 percent in February to 106.9 from a downwardly revised January level of 103.7. An index of 100 represents an average level of contract activity. 

February number support a 12 percent increase over the same time one year ago. At that time, the index sat at 95.4. Furthermore, the index provided a consecutive six month of year-over-year gains. 

February’s index shows a shift in the market that began last September. Before then, contract signings had been down on a year-over-year basis since September 2013 and can be contributed to quickly rising prices in late 2013 and continuing into mid-2014.

The index bodes well for the prospect of an uptick in sales in coming months. However, the underlying obstacle being first-time buyers continues to be the 800 pound gorilla in the room as they continue enter the market a historically low levels.

Another report from NAR showed that the share of first-time home buyers increased to 29 percent in February from 28 percent in January, marking the first increase since November 2014.

Numerous factors can be factored into their low participation, but most notable are stagnant wages, student loan debt, strict credit requirements and a tighter inventory at the lower end of the market.

The most recent housing reports show a market that is stabilizing, although construction starts plunged 17 percent in February compared to January and down 3.3 percent year over year ending February 2014. A report last week showed sales of previously-owned homes were up 1.2 percent in February as supply remains tight and prices rise. 

The biggest pressure for home buyers continues to be tighter inventory, which is helping push home prices higher. 

The national median sales price for existing, or previously owned, homes for 2014 rose 5.7 percent to $208,100. That level of price appreciation is much steadier than the rapid, 11.5 percent gain for 2013. In 2015, NAR expects the national median existing-home prices to rise about 5 percent.

The total existing home sales for 2015 are forecast to be around 5.25 million or about 6.4 percent above 2014. Last year sales finished 2.9 percent below 2013 levels (5.1 million) at 4.94 million while prices rose 5.7 percent.

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