At the end of March, 2017, the National Association of Realtors reported its “Pending Home Sales Index” (PHSI) for February. The news was exceptionally promising all across America. The index rose nearly 6% in one month – an astounding increase for a single month.
Here in the Northeast – for the first time in a LONG time – the index ascended above the 100 mark (the threshold used by NAR to distinguish between normal and high sales activity). In the Midwest, the rate spiked 11% between January and February. The South region experienced an increase of nearly 5.5%. And after a 10% drop between December and January, the West recovered more than 2.5% in February.
2017 was promising to be an eventful year. Inventory was up. Prices were on the rise. Buyers were engaged. Homes were going under contract at a frenetic pace.
But something happened on the way to the closing table… home owners stopped listing their homes for sale.
With the release of the May numbers at the end of last week, we now know the PHSI has declined for the last three consecutive months across the U.S. Among the four major regions, the Northeast is the only one to have declined in each and every one of the succeeding months (please see the accompanying chart).
The main reason for the sluggish sales activity? The historically low inventory of homes for sale.
The confluence of low inventory and strong demand is pressuring home prices upwards. Buyers who have their hearts set on a particular house or a specific neighborhood are discovering they are going to have to pay $5,000… $10,000… or even $20,000 more for that property. Either that, or they are going to have to settle for a different property in a different neighborhood.
Lawrence Yun, the chief economist at the NAR, says “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”
The irony is the NAR released its quarterly Housing Opportunities and Market Experience (HOME) survey earlier last week. The survey results indicate a much higher share of homeowners think now is a good time to sell (year-on-year)… yet they continue to sit on the sidelines. So, many prospective first-time buyers feel like they can’t catch a break: their budget is often somewhat limited, and with a low inventory there is intense competition for the limited supply of affordable houses that are on the market. The result is prices are going up, and many would-be buyers are increasingly frustrated as they remain on the sidelines hoping to find a home to purchase.
The next Pending Home Sales Index will be reported on July 31st.