Pending Home Sales Fall as Affordability Drops

Pending home sales declined for the fourth consecutive month in September, as rising mortgage interest rates and home prices dragged down affordability, according to the National Association of Realtors (NAR).  

The number of contract signings fell 5.6% in September to a reading of 101.6, according to NAR’s Pending Home Sales Index (PHSI). The 

NAR’s Pending Home Sales Index (PHSI), which is based on contract signings and not closings, fell 5.6% to a reading of 101.6 in September, compared to 107.6 in August. Year-over-year, the index is down 1.2% compared to September 2012. 


Concerns over the government shutdown appeared to play a role in regards to affordability, said NAR Chieft Economist Lawrence Yun.

“Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity,” said Yun. “In addition, government and contract workers were on the sidelines with growing insecurity over lawmakers’ inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases.”

September also marks the first time in 29 months that pending home sales were not above year-ago levels.

“This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014,” said Yun. “Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year.”

On a national scale, pending home sales had the biggest monthly September drop in the Northeast, where the PHSI fell 9.6% to 76.7. Compared to September 2012, pending home sales in the Northeast were down 6.4%.

Pending home sales in the West fell 9% in September to 97.3, however the region had the largest annual decrease, falling 9.8% lower than September 2012. 

In the Midwest, the index fell 8.3% to 102.3 in September, but is 5.7% higher than what it was a year ago. 

Pending home sales slipped 0.4% in the South for the month, however the region’s index reading of 116.2 is 2% above year ago levels. 

As for existing home sales, looking ahead NAR anticipates existing home sales will be 10% higher than 2012, reaching more than 5.1 million, and are likely to hold even in 2014. 

Additionally, NAR expects the national median existing-home price to rise 11%-11.5% for all of 2013, but moderate to a 5%-6% gain in 2014.

Written by Jason Oliva

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  • It is not all clear that home sales volume will not erode further in 2014 if interest rates do not ease some, employment does not improve, and first time potential buyers do not see their income rise above the inflation rate. But that does not mean home values will not improve but it will do so in the low to mid single digit percentage range.

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