Real Estate Market Trends: Tight Supply Limits Contracts

A tight inventory of available homes constrained contract activity in the month of February, according to real estate market trends reported today by the National Association of Realtors.

The association’s Pending Home Sales Index, which tracks housing contracts signed but not completed, fell 0.4 percent to 104.8 from January to February. Contracts are typically completed within 60 days of signing, making the index a forward-looking indicator of real estate market trends.

The index is 8.4 percent higher than the 96.6 for February 2012 and has posted annual gains for the past 22 months, according to the association. It remains below the April 2010 high of 110.9, which reflects activity around the homebuyer tax credit deadline.

“Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels,” said Lawrence Yun, chief economist for the association, but tight credit conditions are preventing many small-sized builders from re-entering the market.

Pending home sales posted the biggest decline in the Northeast region, which saw a drop of 2.5 percent to 82.8 in February.  The Midwest region posted the largest gain, rising 0.4 percent to 103.6 in February. A reading of 100 is equal to the average contract activity in 2001, the year the association began tracking pending sales, and at  5 million to 5.5 million is the level considered normal for the current U.S. population.

Scant inventory is also expected to limit existing home sales to 5 million in 2013, near its current rate, Yun said. “The volume of home sales appears to be leveling off with the constrained inventory conditions, and the leveling of the index means little change is likely in the pace of sales over the next couple of months.”

The national median existing home price is expected to go up 7 percent this year, Yun said, and mortgage interest rates should remain near historic lows.

A dip in mortgage interest rates helped boost mortgage applications by 7.7 percent in the week ending March 22, according to real estate market trends reported today by the Mortgage Bankers Association. Refinancing activity accounted for 75 percent of total applications. The average contract interest rate for a 30-year fixed-rate mortgage fell to 3.79 percent from 3.82 percent the week before.

In other real estate market trends reported this week, the month of February saw the biggest annual increase in home prices in more than six years and existing home sales rose 0.8 percent over the same period.