Here’s an unexpected news blip: Pending home sales, the number of existing homes on which new purchase offers are accepted, fell in June. This isn’t totally unexpected; there usually is a bit of a lull at graduation time. Families traditionally did most of their home-buying between Easter and just before graduation, and then between Independence Day and Labor Day. When the kids are in school, they’re less likely to be shopping and planning a move.
But when the June downturn is part of an ongoing trend, it can be a cause for worry. You can see from the graph here (Courtesy of National Association of Realtors) that sales have been steadily declining for a year. Remember, interest rates bottomed out in April of 2013, so the decline last year could be attributable to the rise in interest rates, among other things. The uptick this spring could have been just the normal seasonal bump, and perhaps we’ll see more activity this summer when the number come out. Anecdotally, I can tell you I’m busier than I’ve been in a long time.
But when you combine rising interest rates (an inevitability when the Feds are completely done with propping up mortgage-backed securities), stagnant middle class wages, and higher prices, the slowdown in activity could be troubling. (All three of these things mean that the affordability index, which was starting to look more positive, is looking grim again. That’s another blog.)
My guess, for what it’s worth, is that the rapid escalation of real estate values will slow down – dramatically – but that prices will continue to rise. We’re not in a bubble, and there will be no crash.
However, we’re going to see fewer buyers, and thus fewer sales (after a potentially busy summer.)
Here’s the article from Market Watch this morning:
The U.S. housing market still isn’t perking up.
An index based on contracts signed by buyers fell in June in a mild surprise to Wall Street. The pending home sales index declined by 1.1%, according to the National Association of Realtors.
Economists had expected a small uptick, especially after an outsized 6% gain in May that marked the third straight increase.
What’s been holding the market back? The usual: rising home prices, higher mortgage rates, tougher loan requirements and sluggish wage growth for prospective buyers.
With home prices starting to moderate and the economy gaining steam, many analysts have been forecasting a steady improvement in sales. So far it hasn’t happened.
If sales do start to accelerate, the pending home sales index is a good bellwether. About four-fifths of the contracts signed result in actual sales that close within two months.
Yet although the pending home sales index is up 9% from February, it’s still down 7.3% compared to June 2013. Sales of new and previously owned homes hit multi-year highs last summer before faltering in the face of surging prices and a backup in mortgage rates.
– Jeffry Bartash
Again, I see activity picking up now, but I suspect we’re going to look back at this summer and see it as a “last surge” before sales slowing way down. We’ll see…
Casey Fleming, Author of The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)
Mortgage Advisor, C2 Financial Corp.
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