The Scotsman Guide - Victor Whitman - 28 December 2016
Pending sales in November slowed to the lowest level in nearly a year after a rapid post-election rise in mortgage rates and tightening supply of affordable listings, the National Association of Realtors (NAR) reported.
NAR’s pending sales index declined by 2.7 percentage points to 107.3 from the October level. The index was 0.4 percentage points lower than its level in November 2015, the trade group said. It is the lowest reading since January’s level of 105.4. The index is based on contract signings, and an indicator of future sales of existing homes.
The index was benchmarked at 100, representing the level of contract activity in 2001 when existing home sales fell within a range of 5 million to 5.5 million units annually.
"The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” NAR's Chief Economist Lawrence Yun said. "Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract."
Despite the lull in contract signings, NAR is still forecasting a stronger year for existing home sales in 2016 (estimated at 5.42 million) than in 2015 (5.25 million). Yun said the higher borrowing costs have muddied the outlook somewhat in 2017, however. Although people may want to buy a house now to lock-in a reasonable rate before they move even higher, there are fewer choices. A tight supply of affordable homes in some markets, rising prices and higher rates will likely force some buyers to expand their search or delay buying a home while they save for a down payment.
"Much more robust new home construction is needed to relieve inventory shortages and lessen the affordability pressures present throughout the country," Yun said.
Yun noted, however, that the higher rates should be offset somewhat by job gains, which are forecasted at 2 million net new jobs next year. Home prices are forecast to end the year 5 percent higher than in 2015, NAR said. Price gains should slow to 4 percent in 2017.
Regionally, the contract activity declined in all areas, except for the Northeast. In the Northeast, the index rose marginally in November from the October level, and was running ahead of the pace of year ago. On a year-over-year basis, contract activity in the South, Midwest and West regions was below the pace of a year earlier.