Pending home sales returned with a vengeance in March to the highest reading since May 2015, despite inventory deficiencies and rising home prices.
The National Association of Realtors (NAR) reported Wednesday that its Pending Home Sales Index rose 1.5 percent to 110.5 in March, from a downwardly revised 109.0 in February and is now up 1.4 percent from 109.0 in March 2015.
Mortgage contract signings are have now increased year-over-year for 19 consecutive months and is at the highest level since 111.0 in May 2015.
Lawrence Yun, NAR Chief Economist said, “Despite supply deficiencies in plenty of areas, contract activity was fairly strong in a majority of markets in March. This spring’s surprisingly low mortgage rates are easing some of the affordability pressures potential buyers are experiencing and are taking away some of the sting from home prices that are still rising too fast and above wage growth.”
Last month, NAR reported that pending home sales rose to their highest level in seven months and are still higher than a year ago. The index rose 3.5 percent to 109.1 in February from a downwardly revised 105.4 in January and is now up 0.7 percent from 108.3 in February 2015.
"Today’s report surprised to the upside and is a good indication that existing home sales for April should continue to show growth," said Realtor.com Chief Economist Jonathan Smoke. "The spring buying season clearly began to unfold in earnest in March, but since last year was also a strong year of growth, the year-over-year comparisons will be tough going forward. That said, the buying season is off to a good start that should ensure we indeed see the best year of total sales in a decade."
Yun believes that labor market health and favorable borrowing costs will lead to continued buyer demand and a strong sales pace in the short term.
"However, the consequences from a failure to construct more single-family homes in recent years are starting to impact some top job producing markets, where endless supply shortages continue to limit choices for buyers and are driving up prices beyond what a growing share of households can comfortably afford, " Yun stated.
According to the NAR, the index rose 3.2 percent to 97.0 in March in the Northeast, up 18.4 percent year-over-yeear in this region. Meanwhile, the index in the Midwest increased 0.2 percent to 112.8 in March, up 4.0 percent over last year. Mortgage contract signings in the South experienced a 3.0 percent rise to 125.4 but is 0.6 percent under last year's number. Western signings declined 1.8 percent in March to 95.3, and is now 7.9 percent below a year ago.
“Demand is starting to weaken in some areas, particularly in the West, where the median home price has risen an astonishing 38 percent in the past three years,” Yun stated. “As a result, pending sales in the region have now declined in four of the last five months and are lower than one year ago for the third month in a row. Closed sales in the region in March were also below last year’s pace."