February’s pending home sales suffered a double
digit month-over-month decline in February and fell below the pace a year
earlier for the first time in eight months.
The National Association of Realtors® (NAR) said its Pending Home Sales
Index (PHSI) dropped from 122.8 to 110.3, a decline of 10.6 percent from
January and 0.5 percent compared to February 2020. The PHSI reflects contracts
to purchase existing single-family houses, townhomes, condos, and cooperative
apartments and is a leading indicator of existing home sales over the following
one to two months.
The PHSI has been trending down since
peaking at 130.3 in August and analysts were anticipating further weakness,
although the size of February’s decline was not reflected in their forecasts. The
consensus of those polled by Econoday was a 3.0 percent loss while Trading
Economics, and Market Watch each posted a consensus of -3.1 percent.
“The demand for a home purchase is widespread, multiple
offers are prevalent, and days-on-market are swift but contracts are not
clicking due to record-low inventory,” said Lawrence Yun, NAR’s chief
economist. “Only the upper-end market is experiencing more activity because of
reasonable supply. Demand, interestingly, does not yet appear to be impacted by
recent modest rises in mortgage rates.”
increases, Yun expected mortgages rates to remain relatively low at no more
than 3.5 percent this year. He calls “still advantageous to both prospective
buyers and to current homeowners who are contemplating refinancing.”
It has been
houses priced above $250,000 that have largely been driving home sales for the
last several months. However, Yun says that even homes priced up to around $1
million are facing the same low-inventory dilemma.
buyers may have to enlarge their geographic search areas, given the current
tight market,” Yun said. “If there were a larger pool of inventory to
select from – ideally a five- or a six-month supply -
then more buyers would be able to purchase properties at an
Pending sales were down in all four
major regions compared to January although they remained higher than a year
earlier in the South and West. The PHSI in the Northeast fell 9.2 percent to
92.3, which was a 3.9 percent dip from a year ago. In the Midwest, the index
dropped 9.5 percent compared to January. The 102.4 reading was 6.1 percent lower than the
sales transactions in the South declined 13.0 percent to a PHSI of 133.2 but
remained up 2.9 percent year-over-year. The 96.9 index reading in the West was 7.4
percent lower than January’s, but 1.9 percent higher on an annual basis.
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 numbers for
March will be released on April 22.
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