Inventory and affordability constraints, along with uneven regional numbers, hampered what was supposed to have been a boost to mortgage activity in June, leaving pending home sales slightly up but essentially flat for the month.
The latest Pending Home Sales Index from the National Association of Realtors (NAR) reported that, based on contract signings, pending home sales inched up 0.2 percent to 111 in June. This also is 1 percent higher than last June, but is noticeably down from this year's peak level in April, 115. June, however, was the second-highest reading in a year.
According to NAR, a solid bump in activity in the house-rich Northeast and an uptick in the Midwest pulled up pending sales modestly in June, countering drops in the South and West. The Northeast increased 3.2 percent to 96 in June, 1.7 percent above a year ago. The Midwest increased 0.8 percent to 108.9 in June, and is now 1.6 percent higher than June 2015.
Pending home sales in the South decreased 0.6 percent to 125.9 in June. They are, however, still 1.8 percent above last June. The West was the biggest drag on the index. Pending sales dropped 1.3 percent in June to 101.3 and are 1.8 percent below a year ago.
"With only the Northeast region having an adequate supply of homes for sale, the reoccurring dilemma of strained supply causing a run-up in home prices continues to play out in several markets, leading to the last two months reflecting a slight, early summer cooldown after a very active spring," said Lawrence Yun, NAR chief economist. "Unfortunately for prospective buyers trying to take advantage of exceptionally low mortgage rates, housing inventory at the end of last month was down almost 6 percent from a year ago, and home prices are showing little evidence of slowing to a healthier pace that more closely mirrors wage and income growth."
Yun also said that until inventory conditions markedly improve, “far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale."
One positive development, according to Yun, is that sales to investors have subsided from a high of 18 percent in February to a low of 11 percent in June, the smallest share since July 2009. He attributed this retreat to the diminished number of distressed properties coming onto the market at any given time and the ascent in home prices, which have now risen year-over-year for 52 consecutive months.
"Limited selection of homes at bargain prices is reducing the number of individual investors willing or able to buy," Yun said. "This will hopefully open the door for first-time buyers, who made some progress last month but are still buying homes at a subpar level even as rents increase at rates not seen since before the downturn."
According to realtor.com chief economist Jonathan Smoke, "Today’s pending home sales figures were the highest for June on a non-seasonally adjusted basis since June 2005—even higher than in June 2006, the peak of the housing boom. We also saw the second-highest seasonally adjusted pace of sales in the last 12 months. June’s gains in existing, new, and pending home sales closed out a strong spring and first half of 2016 for the housing market. We are now entering the time of the year when sales usually decline because of the real estate market’s highly seasonal nature. Inventory will likely remain tight for the foreseeable future, but buyers in late summer and fall should face less competition compared to the spring. This year is following the normal seasonal pattern with a bit more strength in June, presumably powered by very low mortgage rates."