Looking at this month’s report, pending home sales slowed for the first time in five months, indicating a slower end of the summer selling season than anticipated. In July, it posted a monthly decline of 1. 8%, but a solid 8.2% annual increase, following a consistent annual gain of 10.4% last month. The index has increased on an annual basis for ten consecutive months now.
Here’s why this is notable, and what home buyers and sellers should know:
- Affordability is going to be the decisive factor in the housing market’s continued recovery. Since pending sales are homes that are in escrow (e.g., have a signed contract) and will likely close in 1 to 2 months, it suggests that existing home sales through the summer will post solid year-over-year gains. However, we starting to see a slowdown which may be because home prices are pushing up against the affordability ceiling especially in faster moving markets where inventory is tight.
- Regionally, the housing markets where we continue to see an upswing in home buying and selling activity are areas with strong job growth, particularly the West (10.4%), followed by the South (7.8%) and Midwest (5.0%). We’re also seeing a 12% spike in the Northeast, which had stalled thanks to an especially cold winter.
- To take a deep dive into what’s happening in the West, specifically in California, the California Pending Home Sales Index also released earlier this week showed continued robust growth with 5 straight months of double-digit increases. However, increases were driven by stronger markets in the Central Valley and Southern California, while pending sales in the San Francisco Bay Area reversed from the period of improvements. Bifurcation of California markets speak to affordability limits that some high performing markets may be reaching. Additionally, with inventory shortages persisting in those markets, there also may be a limit to how far improvements will go.
- First-time buyers have made a marked comeback, which is promising for housing market going forward. Fears over millennials’ disinterest in homeownership is abating, and the increase in their homeownership rate as indicated in the latest Census’ Homeownership survey is a promising gage for where they stand on homeownership.
