February’s Pending Home Sales Hit Highest Level Since June 2013, Says NAR

The number of contracts signed to buy previously-owned homes in February hit the highest level since June 2013, thanks to big leaps in the Midwestern and Western regions, the National Association of Realtors said Monday.

NAR’s Pending Home Sales Index, which tracks contract signings (as opposed to closed sales), rose 3.1% 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.) That level was 12% higher than in February 2014, when the index stood at 95.4, and marks the sixth consecutive month of year-over-year gains. February’s index is at its highest level since June 2013, when the measure stood at 109.4, and surpassed expectations of economists surveyed by Bloomberg ahead of the release.

“Pending sales showed solid gains last month, driven by a steadily-improving labor market, mortgage rates hovering around 4% and the likelihood of more renters looking to hedge against increasing rents,” said Lawrence Yun, NAR’s chief economist. “These factors bode well for the prospect of an uptick in sales in coming months. However, the underlying obstacle – especially for first-time buyers – continues to be the depressed level of homes available for sale.”

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

Yun also said that inventory is tighter at the lower end of the market, where first-time home buyers tend to purchase.

February’s index read continues a shift in the market that began last September. Before that month, contract signings had been down on a year-over-year basis since September 2013, as quickly rising prices slowed the pace at which Americans were purchasing homes. As price gains slowed down and investors exited the market, contract signings have crept up.

Overall, the housing reports released in March show a market that is stabilizing. Though construction starts fell a dramatic 17% in February compared to January, they were just 3.3% below February 2014 groundbreakings, according to Commerce, and can be largely blamed on unusually harsh winter weather. A report last week showed sales of previously-owned homes up 1.2% in February as supply remains tight and prices rise. Tomorrow we’ll get the latest data on sales prices for previously-owned homes in January; at this point we know that prices for previously-owned homes continued to slow down in December (the most recent data available from SP/Case-Shiller) carrying on a nearly year-long streak of slow-downs.

The rising number of contracts for previously-owned homes suggests that as prices moderate, consumers are getting back into the buying game. Today’s pending home sales report is considered a more timely pulse of the market than other reports because it is forward-looking, based on contracts signed rather than closed transactions. (Closings generally come one to two months after a contract is signed.) The biggest pressure for buyers appears to be tighter inventory, which is helping to keep prices on the rise. 

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

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

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% in February from January, while the Southern index declined by 1.4%. Meanwhile, the Western region’s index climbed 6.6% in February to its highest level since June 2013, as the Midwest index jumped 11.6% in February.

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

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