Investor Pull-Back hits Pending Home Sales

News

Pending home sales declined slightly in
August, mirroring a similar pull-back in existing home sales announced last
week.  The National Association of
Realtors® (NAR) said today that its Pending Home Sale Index (PHSI) for August
was 104.7, a decline of 1.0 percent from July’s level of 105.8.  Existing home sales, also according to NAR,
slipped 1.8 percent in August.  The month
however remained the second best of 2014 for both performance measures.

The PHSI is a forward-looking indicator based on contract signings for home
purchases.  Despite the slight decline in
August the index is above 100, considered an average level of contract activity
for the fourth consecutive month. The August index was 2.2 percent below the PHSI in August 2013.

Like
the decline in existing home sales, Lawrence Yun, NAR chief economist said the
easing of the PHSI was partially due to investor pull-back from the residential
market.  “Fewer distressed homes at bargain prices and the
acknowledgement we’re entering a rising interest rate environment likely caused
hesitation among investors last month,” he said. “With investors pulling back,
the market is shifting more towards traditional and first-time buyers who rely
on mortgages to purchase a home.”

According to
NAR’s Profile of Home Buyers and Sellers, 81 percent of first-time buyers in
2013 who financed their purchase obtained a conventional or FHA loan. Overall,
first-time homebuyers have represented less than a third of all buyers each
month for the past two years.

Yun says
first-time buyer participation should gradually improve despite tight credit
conditions and the inevitable rise in rates. “The employment outlook for young
adults is brightening and their incomes finally appear to be rising,” he said.
“Jobs and income gains will help repay student debt and better position
first-time buyers, setting the stage for improved sales growth in upcoming
years.” 

All major regions experienced declines in pending sales
except for the West, which rose for the fourth consecutive month, increasing by
2.6 percent to 102.1, but is still 2.6 percent below the previous August. The
PHSI in the Northeast slipped 3.0 percent to 86.5 in August, but remains 1.6
percent above a year ago. In the Midwest the index fell 2.1 percent to 102.4 in
August, and is 7.6 percent below August 2013.  Pending home sales in the
South decreased 1.4 percent to an index of 117.0 in August, unchanged from a
year ago.

Yun forecasts
existing-homes sales to be down 3.0 percent this year to 4.94 million, compared
to 5.09 million sales of existing homes in 2013.  Home sales are expected to be stronger in the
second half of the year behind improved inventory conditions, continuously low
interest rates and slower price growth. The national median existing-home price
is projected to grow between 5 and 6 percent this year and 4 and 5 percent next
year.

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