Lopsided Conditions Making it Hard for Buyers

Pending homes have slumped for the third consecutive month and, according to the National Association of Realtors (NAR) Wednesday report, it’s due to the housing shortage.

NAR’s Pending Home Sales Index, a forward-looking indicator based on contract signings, showed drops in signings from 109.4 in April to 108.5 in May, which is 1.7 percent lower than 2016. This is the second straight annual decline and the most recent since November and December of last year.

According to NAR Chief Economist Lawrence Yun, the extremely low inventory levels somewhat sidetracked the housing market this spring.

"Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales," Yun said. "Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast."

Brad Walker, CEO of Income&, an online platform that gives accredited investors the opportunity to buy high-quality, fractionalized mortgages, said the report presents contradictory data.

"Declining consumer sentiment about the economy overall may be contributing to these declines," Walker said. "However, it is hard to separate this effect from the fact that supply continues to be constrained, which has forced up prices. These price increases are felt especially in entry-level housing priced at $100,000, which indeed has been the major contributor to the fall-off in pending home sales. Above the $100,000 mark, pending housing sales have jumped significantly, which does not indicate a long-term slump. It also may indicate that the recent pivot by builders away from multi-family homes and toward single-family housing was a smart move."

Homes under $100,000 were down 7.2 percent in closings last month compared to last year and up only 2 percent for homes between $100,000 and $250,000. Higher price brackets between $750,000 and $1 million showed sales expanding all the way to 26 percent while homes over $1 million are seeing 29.1 percent increases.

NAR released its quarterly Housing Opportunities and Market Experience (HOME) survey earlier this week showing that fewer renters think it’s a goof time to buy a home, and respondents overall are less confident about the economy and their financial situation than earlier this year.

"The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity," said Yun. "Meanwhile, many prospective first-time buyers can't catch a break. Prices are going up and there's intense competition for the homes they're financially able to purchase."

According to NAR, existing-homes are forecast to be around 5.63 million this year, which is a 3.2 percent increase from 2016’s 5.45 million. Median existing-home prices are also expected to increase about 5 percent.

"A much higher share of homeowners compared to a year ago think now is a good time to sell, but until they do, sales will likely stay flat and low inventory will keep price growth moving swiftly," said Yun.