Pending home sales overall slipped in November, but saw minor increases in the Northeast and the West, according to the National Association of Realtors (NAR).
The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.7% to 101.4 in November, down from 102.1 in October. However, year-over-year contract signings dropped -7.7%, making this the eleventh straight month of annual decreases. Home sales are a good leading indicator to track because when inventory levels rise, there isn’t as much demand for the construction of new homes.
Lawrence Yun, NAR chief economist, cited year-over-year increases in active listings from data at realtor.com to illustrate a potential rise in inventory. Denver-Aurora-Lakewood, CO; Seattle-Tacoma-Bellevue, WA; San Francisco-Oakland-Hayward, and San Diego-Carlsbad, CA; and Providence-Warwick, RI; saw the largest increases in active listings in November compared to a year ago.
Yun said in the press release that the current sales numbers don’t fully take into account other data. “The latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates,” he said.
All four major regions sustained a drop when compared to one year ago, with the West taking the brunt of the decrease. “The West crawled back lightly, but is still experiencing the biggest annual decline among the regions because of unaffordable conditions,” Yun added.
Yun said affordability issues in the West deserve part of the blame for the drop in sales. Home prices in the West region have risen too much, too fast, according to Yun. “Land cost is expensive, and zoning regulations are too stringent. Local officials should consider ways to boost local supply; if not, they may see population migrating to neighboring states and away from the West Coast.
“Home sales in 2018 look to close out the year with 5.3 million home sales, which would be similar to that experienced in the year 2000. But given the 17 million more jobs now compared to the turn of the century, home sales are clearly underperforming today. That also means there is steady longer-term growth potential.”