Pending Home Sales See Slight November Gains

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Pending home sales pulled off a second
straight gain
in November, but just barely.  The National Association of Realtors® (NAR)
said its Pending Home Sales Index (PHSI), which is based on contracts for existing
home purchases
, rose 0.2 per percent to 109.5 compared to the October level of
109.3.  The November reading was the
highest since June, and was higher year-over-year for the first time since
then, beating the November 2016 level by 0.8 percent.

The gain was less than the 0.5 percent
increase analysts polled by Econoday had expected, although their predictions
covered a lot of territory
.  The range
varied from -1.0 to 5.0 percent.

Lawrence Yun,
NAR chief economist, said, “The housing market is closing the year on a
stronger note than earlier this summer, backed by solid job creation and an
economy that has kicked into a higher gear.  However, new buyers coming into the market are
finding out quickly that their options are limited and competition is robust.
Realtors say many would-be buyers from earlier this year, stifled
by tight supply and higher prices, are still trying to buy a home.”  NAR
also noted that 2018 existing-home sales and price
growth are expected to slow, primarily because of the altered tax benefits of
homeownership affecting some high-cost areas.   

One of the
biggest questions heading into the new year, according to Yun, is if the
depressed levels of available supply can improve enough to slow price growth
and make buying a home more affordable. While last month’s significant boost in
existing sales was noteworthy, it did come with some concerns. Sales prices
were up 5.8 percent – more than double wage growth – and the 3.4-month supply
of homes on the market was the lowest since NAR began tracking that statistic
in 1999.  

“The
strengthening economy, and expectation that more millennials will want to buy,
serve as promising signs for solid homebuying demand next year,” Yun said, “while
also putting additional pressure on inventory levels and affordability.  Sales do have room for growth in most areas,
but nationally, overall activity could be slightly negative. Markets with high
home prices and property taxes will likely feel some impact from the reduced
tax benefits of owning a home” These include a lower cap on the mortgage
interest deduction and a new cap on the amount of property tax that can be
deducted.

Yun forecasts that
existing-home sales will finish out this year up 1.7 percent from 2016 at
around 5.54 million units. He also projects an annual increase of about 6.0
percent in the national median existing-home price.  He anticipates essentially no change (a
decline of 0.4 percent) in existing sales (5.52 million) in 2018, and for price
growth to moderate to around 2 percent.

The Northeast
saw the greatest improvement in month-over-month activity. The PHSI for the
region jumped 4.1 percent to 98.9, and is now 1.1 percent above a year ago. In
the Midwest the index rose 0.4 percent for the month and 0.8 percent
year-over-year to 105.8.

The other two
regions did not fare as well.  Pending
home sales decreased 0.4 percent in the South, to an index of 123.1, but remain
2.5 percent higher than last November. The index in the West declined 1.8
percent to 100.4, and lags November 2016 by 2.3 percent.

The Pending
Home Sales Index is a leading indicator for the housing sector, based on pending
sales of existing homes. A sale is listed as pending when the contract has been
signed but the transaction has not closed, though the sale usually is finalized
within one or two months of signing.

The index is
based on a large national sample, typically representing about 20 percent of
transactions for existing-home sales. In developing the model for the index, it
was demonstrated that the level of monthly sales-contract activity parallels
the level of closed existing-home sales in the following two months.

An index of
100 is equal to the average level of contract activity during 2001, which was
the first year to be examined. By coincidence, the volume of existing-home
sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered
normal for the current U.S. population.



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