NAR's Pending Home Sales Index Hits Highest Level in Two Years in July

by Chicago Agent

August 29, 2012

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NAR’s pending home sales index in July reached its highest level since the homebuyer tax credit expired in 2010, rising 2.4 percent from June.

By Peter Ricci

The Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, rose 2.4 percent from June to July and reached its highest level in more than two years, or, since the expiration of the first-time homebuyer tax credit, according to the National Association of Realtors.

The index rose from 99.3 in June to 101.7 in July, far above the consensus, and from July 2011, the index is up by 12.4 percent.

Pending Home Sales Index and the Housing Market

Some other details in NAR’s report included:

Regionally, the South and the Midwest posted the best numbers in the pending home sales index, rising respective monthly amounts of 3.4 percent and 5.2 percent. Year-over-year increases were even more promising, with pending sales up 20.2 percent in the Midwest and 15.6 percent in the South.
Increases were a bit more modest in the Northeast, where sales increased 0.5 percent from June to July, and the West was the only area where sales declined, falling 1.7 percent.
Contract has now increased on a yearly basis for 15 consecutive months.
Based on the results of the pending home sales index, NAR is projecting an 8 to 9 percent increase for existing-home sales in 2012, with another 7 to 8 percent increase to follow in 2013. As we just reported a week ago, existing-home sales in July were up 2.3 percent from June and 10.4 percent from July 2011, and median existing-home price posted its best yearly increase since 2006.

Low Housing Inventory Because of Excessive Demand?

The challenge going forward, according to Lawrence Yun, NAR’s chief economist, will be finding adequate housing supply to meet demand.

“Falling visible and shadow inventories point toward continuing price gains,” Yun said. “Expected gains in housing starts of 25 to 30 percent this year, and nearly 50 percent in 2013, are insufficient to meet the growing housing demand.”

As we’ve documented on repeated occasions, housing inventory is the big story in real estate right now, but the biggest cause for the housing inventory decline is the simplest – sellers do not want to sell! As Redfin’s Real Time Home Seller Survey demonstrated, now that the market is stabilizing and prices are beginning to recover, sellers recognize that they can afford to wait six to 12 months and net a better sale price for their residence; so, look for those homes to enter the market in 2013, and hopefully add to active housing inventory.