NAR’s Yun Says High Foot Traffic Not Translating to More Sales

John Jordan | June 2017

WASHINGTON—Declining for-sale home inventory may finally be catching up with the nation’s residential sales market. The National Association of Realtors reports that pending home sales in April fell for the second consecutive month.

NAR in a report released on May 31st, stated that its Pending Home Sales Index fell 1.3% to 109.8 in April from a downwardly revised 111.3 in March. After last month’s decline, the index is now 3.3% below a year ago, which is the first year-over-year decline since last December and the largest since June 2014 (7.1%). The index is a forward-looking indicator based on contract signings.

Lawrence Yun, chief economist of the National Association of Realtors.
Photo Credit NAR

NAR Chief Economist Lawrence Yun says contract activity is fading this spring because significantly weak supply levels are spurring deteriorating affordability conditions. “Much of the country for the second straight month saw a pullback in pending sales as the rate of new listings continues to lag the quicker pace of homes coming off the market,” he said. “Realtors are indicating that foot traffic is higher than a year ago, but it’s obviously not translating to more sales.”

Yun added, “Prospective buyers are feeling the double whammy this spring of inventory that’s down 9.0% from a year ago and price appreciation that’s much faster than any rise they’ve likely seen in their income.”

Unfortunately, Yun believes there is little evidence these astoundingly low supply levels are going away soon. Homebuilding activity has not picked up enough this year and too few homeowners are listing their home for sale.

“The unloading of single-family homes purchased by real estate investors during the downturn for rental purposes would also go a long way in helping relieve these inventory shortages,” Yun theorized. “To date, there are no indications investors are ready to sell. However, they should be mindful of the fact that rental demand will soften as the overall population of young adults starts to shrink in roughly five years.”

Yun forecasts existing-home sales to be around 5.64 million this year, an increase of 3.5% from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 5%. In 2016, existing sales increased 3.8% and prices rose 5.1%.

The PHSI in the Northeast decreased 1.7% to 97.2 in April, and is now 0.6% below a year ago. In the Midwest the index fell 4.7% to 104.4 in April, and is now 6.1% lower than April 2016.

Pending home sales in the South declined 2.7% to an index of 125.9 in April and are now 2.3% below last April. The index in the West jumped 5.8% in April to 100.0, but is still 4.2% below a year ago.

The New York State Association of Realtors in its monthly sales report released on May 25th also pointed to lower pending and closed sales and higher sales prices, due in large part to low for-sale home inventory.

Strong buyer demand, coupled with the ongoing decline in the number of homes for sale, fueled a 7.8% increase in the April statewide median sales price, according to the housing market report released by the New York State Association of Realtors. Inventory constraints also led to a 5% decline in home sales for the month compared to April 2016.

“As anticipated, the continued decline in the number of homes currently on the market has slowed the sales pace as many buyers are challenged to find an available home that meets their needs,” said Duncan R. MacKenzie, CEO of the New York State Association of Realtors “Realtors are reporting that buyer demand remains strong and newly listed homes are selling quickly. Basic economics are at play with high demand and low inventory driving selling prices higher.”

“As we enter the typically busy summer months, the housing market holds great opportunity for sellers as we expect strong buyer demand to continue,” said MacKenzie. “Without the return of sellers to the market, home sales will likely be constrained during the summer of 2017.”

The April 2017 sales total of 8,495 represents a decrease of 5% from the April 2016 record total of 8,944. The April 2017 statewide median sales price was $235,000, an increase of 7.8% from the April 2016 median of $218,000. April 2017 pending sales declined 4% from a year ago to reach 12,760.

The months supply of homes for sale dropped 21.6% at the end of April to 5.8 months supply. It was at 7.4 months at the end of April 2016. A 6.0-month to 6.5-month supply is considered to be a balanced market. Inventory stood at 65,187, a decrease of 18.3% compared to April 2016.

John Jordan
Editor, Real Estate In-Depth