Home Sales Ending Year Strong, Pending Sales Rise Slightly
Real Estate In-Depth | December 2017
WASHINGTON—Recently released reports on existing home sales and pending sales in November released by the National Association of Realtors showed strong sales activity. However, NAR predicts conditions will weaken somewhat in the new year.
The National Association of Realtors reported on Dec. 27 that pending home sales were mostly unmoved in November, but did squeak out a minor gain both on a monthly and annualized basis. Heading into 2018, existing-home sales and price growth are forecast to slow, primarily because of the altered tax benefits of homeownership affecting some high-cost areas, NAR states.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 0.2% to 109.5 in November from 109.3 in October. With November’s modest increase, the index remains at its highest reading since June (110.0), and is now 0.8% above a year ago.
Lawrence Yun, NAR chief economist, says contract signings mustered a small gain in November and were up annually for the first time since June. “The housing market is closing the year on a stronger note than earlier this summer, backed by solid job creation and an economy that has kicked into a higher gear,” he said. “However, new buyers coming into the market are finding out quickly that their options are limited and competition is robust. Realtors say many would-be buyers from earlier this year, stifled by tight supply and higher prices, are still trying to buy a home.”
One of the biggest questions heading into 2018, according to Yun, is if the depressed levels of available supply can improve enough to slow price growth and make buying a home more affordable. While last month’s significant boost in existing sales was noteworthy, it did come with some concerns. Sales prices were up 5.8%—more than double wage growth—and the 3.4-month supply of homes on the market was the lowest since NAR began tracking in 1999.
“The strengthening economy, and expectation that more millennials will want to buy, serve as promising signs for solid home buying demand next year, while also putting additional pressure on inventory levels and affordability,” said Yun. “Sales do have room for growth in most areas, but nationally, overall activity could be slightly negative. Markets with high home prices and property taxes will likely feel some impact from the reduced tax benefits of owning a home.”
Yun forecasts for existing-home sales to finish 2017 at around 5.54 million, which is an increase of 1.7% from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 6%. In 2018, Yun anticipates essentially no change (a decline of 0.4%) in existing sales (5.52 million), and price growth to moderate to around 2%.
The PHSI in the Northeast jumped 4.1% to 98.9 in November, and was 1.1% above a year ago. In the Midwest the index rose 0.4% to 105.8 in November, and was 0.8% higher than November 2016.
Pending home sales in the South decreased 0.4% to an index of 123.1 in November but were still 2.5% higher than last November. The index in the West declined 1.8% in November to 100.4, and was 2.3% below a year ago.
NAR reported earlier this month that existing-home sales surged for the third straight month in November and reached their strongest pace in almost 11 years, according to the National Association of Realtors. All major regions except for the West saw a significant hike in sales activity last month.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 5.6% to a seasonally adjusted annual rate of 5.81 million in November from an upwardly revised 5.50 million in October. After last month’s increase, sales were 3.8% higher than a year ago and were at their strongest pace since December 2006 (6.42 million).
November existing-home sales in the Northeast leaped 6.7% to an annual rate of 800,000, (unchanged from a year ago). The median price in the Northeast was $273,600, which was 4.0% above November 2016.
Lawrence Yun, NAR chief economist, says home sales in most of the country expanded at a tremendous clip in November. “Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end,” he said. “As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month. The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”
The median existing-home price for all housing types in November was $248,000, up 5.8% from November 2016 ($234,400). November’s price increase marks the 69th straight month of year-over-year gains.
Total housing inventory4 at the end of November dropped 7.2% to 1.67 million existing homes available for sale, and was 9.7% lower than a year ago (1.85 million) and has fallen year-over-year for 30 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace, which is down from 4.0 months a year ago.
“The anticipated rise in mortgage rates next year could further cut into affordability if these staggeringly low supply levels persist,” said Yun. “Price appreciation is too fast in a lot of markets right now. The increase in homebuilder optimism must translate to significantly more new construction in 2018 to help ease these acute inventory shortages.”
First-time buyers were 29% of sales in November, which was down from 32% both in October and a year ago. NAR’s 2017 Profile of Home Buyers and Sellers—released earlier this year—revealed that the annual share of first-time buyers was 34%.
Matching the highest share since May, all-cash sales were 22% of transactions in November, which was up from 20% in October and 21% a year ago. Individual investors, who account for many cash sales, purchased 14% of homes in November, up from 13% last month and unchanged from a year ago.
Properties typically stayed on the market for 40 days in November, which is up from 34 days in October but down from 43 days a year ago. Forty-four% of homes sold in November were on the market for less than a month.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage increased for the second straight month to 3.92% in November from 3.90% in October. The average commitment rate for all of 2016 was 3.65%.
On the topic of tax reform, NAR President Elizabeth Mendenhall, a sixth-generation Realtor from Columbia, MI and CEO of RE/MAX Boone Realty, says it’s good news homeowners can continue to count on tax incentives such as the mortgage interest deduction and the state and local tax deduction.
“Only 6% of homeowners have mortgages exceeding $750,000, and only 5% pay more than $10,000 in property taxes, but most homeowners won’t itemize under the new regime,” she said. “While we’re pleased that important homeownership incentives such as the capital gains exclusion survived in conference, additional changes are required to truly incentivize homeownership in the tax code.”
Distressed sales—foreclosures and short sales—were 4% of sales for the fourth straight month in November, and were down from 6% a year ago. Three percent of November sales were foreclosures and 1% were short sales.
Single-family and Condo/Co-op Sales
Single-family home sales grew 4.5% to a seasonally adjusted annual rate of 5.09 million in November from 4.87 million in October, and are now 3.2% above the 4.93 million pace a year ago. The median existing single-family home price was $248,800 in November, up 5.4% from November 2016.
Existing condominium and co-op sales increased 14.3% to a seasonally adjusted annual rate of 720,000 units in November, and are now 7.5% above a year ago. The median existing condo price was $242,500 in November, which is 8.8% above a year ago.