Why Are Contract Signings on Homes Slipping?

Pending home sales remained sluggish, according to the National Association of Realtors (NAR). NAR’s Pending Home Sales Index, released on Wednesday, indicates that in July, pending home sales took a step back year over year for the seventh month in a row. The index fell by 0.7 percent from 107.0 in June to106.2 in July.

“Contract signings inched backward once again last month, as declines in the South and West weighed down on overall activity,” said NAR Chief Economist Lawrence Yun. “It’s evident in recent months that many of the most overheated real estate markets – especially those out West – are starting to see a slight decline in home sales and slower price growth.”

“The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it,” Yun added.

Yun also notes that increasing inventory in large metro areas may keep home prices affordable, especially in the West. Existing home sales are expected to decrease 1.0 percent to 5.46 million this year but pick back up next year, increasing two percent.

“Today’s weakness suggests that home sales will continue to stagnate in the months ahead,” said Danielle Hale, Chief Economist for realtor.com. “While data from realtor.com show that inventory has started to pick up in certain high-priced markets even resulting in an increase in price cuts in some markets, these markets are generally higher-cost housing markets and the greatest inventory pick-up has been in higher price tiers. Because inventory relief hasn’t come in the price tiers where it’s most demanded by buyers--affordable, entry-level homes--this influx of houses for sale hasn’t translated into additional home sales.  Solving this mismatch in price between buyer demand and homes for sale is the key challenge facing the housing market.”

Find the full Pending Home Sales data report here.