Pending home sales soared again in June,
although the liftoff was relatively shallow compared to the 43 percent increase
in May. The National Association of Realtors’® (NAR’s) Pending Home Sales
Index (PHSI). The index, a forward-looking indicator based on contracts to purchase
existing homes, rose 16.6 percent compared to May, and increased year-over-year
by 6.3 percent. The index is now at 116.1.
The two months of improving activity have
brought the index back from its April level of 69.0
where it landed after falling by more than 20 percent in both that month and in
March as much of the nation was shut down by the COVID-19 pandemic.
gains were above even the best guesses by analysts polled by Econoday. Their predictions
ranged from a 10 percent downturn to gains of 15.6 percent. The consensus was
an increase of 5.2 percent.
Lawrence Yun, cheif economist says, “Consumers are taking advantage of record-low mortgage rates resulting from the
Federal Reserve’s maximum liquidity monetary policy.”
In light of the apparent housing
market turnaround, NAR has raised its forecast for the home sales market. For
all of 2020, existing-home sales are expected to decline by only 3 percent and
should be at an annual rate of 5.6 million by the fourth quarter. The same percentage
increase is expected for new home sales.
Yun says he expects that the GDP
will grow 4.0 percent in 2021 and that, along with mortgage rates that are
anticipated to stay at near 3 percent over the next 18 months, should boost
home sales. He projects a 7 percent growth in existing sales and 16 percent in new
home sales in 2021. Home prices will likely appreciate 4 percent this year then
moderate to 3 percent next year as more new supply comes to market.
Each of the four major regions
experienced a second month of growth in month-over-month pending home sales
transactions. The Northeast, which saw a 54.4 percent gain from May was the
only region that did not move higher on an annual basis. Its PHSI is now at
95.4, down 0.9 percent from June 2019.
home sales in the South increased 11.9 percent to an index of 140.3, 10.3
percent above a year earlier. The index in the West improved by 11.7 percent to
99.6, a 4.7 percent annual gain.
“The Northeast’s strong bounce back
comes after a lengthier lockdown, while the South has consistently outperformed
the rest of the country,” Yun said. “These remarkable rebounds speak to
exceptionally high buyer demand.”
Yun says that as house hunters seek
homes away from bigger cites – likely to avoid the coronavirus – properties
that were once an afterthought for potential buyers are now growing in
“While the outlook is promising,
sharply rising lumber prices are concerning,” Yun said. “A reduction in tariffs
– even if temporary – would help increase home building and thereby spur faster
The PHSI is based on a large
national sample, typically representing about 20 percent of transactions for
existing-home sales. In developing the model for the index, it was demonstrated
that the level of monthly sales-contract activity parallels the level of closed
existing-home sales in the following two months. Existing-Home Sales for July
will be reported August 21.
An index of 100 is equal to the
average level of contract activity during 2001, which was the first year to be
examined. By coincidence, the volume of existing-home sales in 2001 fell within
the range of 5.0 to 5.5 million, which is considered normal for the current