For the third consecutive month in April, pending home sales rose to reach their highest level since February 2006, showing strong promise of more buyers entering the market.
The National Association of Realtors' (NAR) Pending Home Sales Index, which is based on contract signings, increased 5.1 percent to 116.3 in April from an upwardly revised 110.7 in March. The index is now 4.6 percent higher than last April's figure of 111.2. The index has now increased year-over-year for 20 consecutive months and has not been this high since February 2006 when it was 117.4.
Lawrence Yun, NAR Chief Economist noted, "The ability to sign a contract on a home is slightly exceeding expectations this spring even with the affordability stresses and inventory squeezes affecting buyers in a number of markets. The building momentum from the over 14 million jobs created since 2010 and the prospect of facing higher rents and mortgage rates down the road appear to be bringing more interested buyers into the market."
As far was mortgage rates are concerned, Yun stated that he is not sure how long they will remain under 4 percent. He noted that factors such as rent growth, rising gas prices, and the effects of last year's cheap oil on consumer prices could cause both inflation and rates to rise.
"Even if rates rise soon, sales have legs for further expansion this summer if housing supply increases enough to give buyers an adequate number of affordable choices during their search, " Yun said.
The NAR reported that all major regions saw gains in contract activity last month except for the Midwest, which saw a small decline.
The Northeast index increased 1.2 percent to 98.2 in April, and is now 10.1 percent above a year ago. Pending home sales in the South rose 6.8 percent to an index of 133.9 in April and are 5.1 percent higher than last April. The index in the West rose 11.4 percent in April to 106.2, and is now 2.8 percent above a year ago. The Midwest index declined 0.6 percent to 112.9 in April, but is still 2.0 percent above April 2015.
Existing sales continued upward by 1.7% in April, and the strong PHSI report plus low mortgage rates suggest a continuing steady recovery through the summer. However, the long-term weakness among first-time buyers continues to dampen all sales in 2016.
"Today’s report rounds out a triple crown of April home sales reports with existing home closings, new pending contracts, and new home sales all solidly up as the spring buying season ramped up," said Realtor.com Chief Economist Jonathan Smoke. "Across these metrics, the pace of total home sales is up more than 10 percent over last year, putting 2016 in the pole position to earn the standing of the best year in a decade. Overall, the report is a clear indication that this spring buying season is truly the best in a decade."