Pending Home Sales Drop in August

The number of existing U.S. homes going under contract dropped in August, marking the fourth time in five months the figure has fallen.

According to the National Association of Realtors (NAR), its pending home sales index, which tracks contract signings for purchases of previously owned homes, fell 1.8% from July to 104.2 in August. This is a more significant decline than some economists predicted.

The pending home sales index reflected a 2.3% drop from August of 2017, showing an overall decline from year-to-year. This, along with fairly steady month-over-month losses, indicates a broader slowdown across the market, rather than a seasonal trend.

“With prices having risen so quickly, many consumers were deciding to wait to list their homes hoping to see additional price and equity gains,” said Lawrence Yun, chief economist for the NAR. “However, with indications that buyers are beginning to pull out, price gains are going to decelerate and potential sellers are considering that now is a good time to list and bring more properties to the market.”

How Pending Home Sales Measure Market Activity

Unless they fall through, pending home sales typically close within a month or two of signing, writes Sharon Nunn, contributor to realtor.com. This helps explain why pending home sales are indicative of existing-home sales in the near future. As pending home sales increase, the likelihood of existing home sales also increases. Additionally, mortgage application volume may be more likely to increase as pending home sales rise.

What’s Driving Up Home Prices?

There appears to be several conditions that are driving up home prices in today’s real estate market:

  • Inventory shortage
  • Construction labor shortage
  • Rising construction costs
  • Rising mortgage rates

Inventory of available homes has been getting tighter over the last year or two. While construction of new homes has picked up considerably in many markets, it hasn’t been substantial enough to thwart rapidly rising prices. Additionally, construction teams face other challenges such as a shortage of skilled workers and higher material costs. Finally, mortgage rates have been inching upward slightly over the last few months, further contributing to the affordability issue for many potential home buyers.

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