Pending Home Sales Drop 2.5% in July

Real Estate In-Depth | September 2019

Source: National Association of Realtors

WASHINGTON—Uncertainty over the direction of the U.S. economy has trumped very low mortgage interest rates, according to the National Association of Realtors. NAR recently reported that pending sales in the United States fell 2.5% in July. Pending sales in the Northeast fell less than 2% in July, as compared to a month earlier.

Of the four major regions, each reported a drop in contract activity, although the greatest decline came in the West.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.5% to 105.6 in July, down from 108.3 in June. Year-over-year contract signings fell 0.3%, a reversal of the prior month’s increase.

“Super-low mortgage rates have not yet consistently pulled buyers back into the market,” said NAR Chief Economist Lawrence Yun. “Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.”

In July 2019, pending home sales were down 0.3% year-over-year.

Yun expects GDP growth to ease to 2.0% in 2019 and 1.6% in 2020, but growth predictions are somewhat uncertain due to trade tensions. With slower economic growth, interest rates will remain low. Though home sales will get a short-term boost from lower mortgage rates, existing-home sales are likely to be flat at 5.34 million in 2019 given the level of sales in the first seven months of the year. Amid tight inventory conditions, the median price of existing-home sales will continue to increase, but at a slower pace of 4% in 2019, to $269,000, and 3% in 2020, to $278,500.

Low inventory numbers impact the nation’s overall economy, according to Yun. “A boost to home building would greatly improve economic growth,” he said. “More free-market prices on construction materials without government interference about where homebuilders have to get their supply will also help produce more and grow the economy. The housing industry cannot grow without more supply.”

July Pending Home Sales Regional Breakdown

All regional indices are down from June. The PHSI in the Northeast fell 1.6% to 93.0 in July and is now 0.9% lower than a year ago. In the Midwest, the index dropped 2.5% to 101.0 in July, 1.2% less than July 2018.

Pending home sales in the South decreased 2.4% to an index of 122.7 in July, but that number is 0.1% higher than last July. The index in the West declined 3.4% in July to 93.5 but still increased 0.3% above a year ago.