Pending Sales Hampered by Insufficient Supply

The Pending Home Sales Index decreased 2.8% in January 2017 to its lowest level in a year, although it remained 0.4% above last January. The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts reported by the National Association of Realtors (NAR), decreased to 106.4 in January from an upwardly revised 109.5 the previous month.

The PHSI increased 2.3% in the Northeast and 0.4% in the South, but fell 5.0% in the South and 9.8% in the West. Year-over-year, the PHSI increased 3.6% in the Northeast and 2.0% in the South, but decreased 0.4% in the West and 3.8% in the Midwest.

January existing sales were strong to begin the year, and new home sales posted an increase as well. However, supply shortages continue to suppress sales. Higher mortgage rates lowered housing affordability and bridled sales. However, as the economy adds jobs, increased demand among first-time buyers will help fuel existing sales in 2017.



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1 reply

  1. I believe we are seeing the buyers’ fraction to impending mortgage rate increases. It has caused a lot of buyers to accelerate their purchase, resulting in a good late winter, early spring market. Unfortunately, the extra early sales will likely result in slower sales as we advance into spring. Builders should consider forward mortgage commitments to help in dealing with a surge in interest rates and to protect their backlog. Rather than a commitment for a finite interest rate, I recommend a rate cap commitment which would provide the buyer with protection at a lesser cost. The interest rate would be the market rate but nit higher than the “cap” rate. For example if the Cap Rate is 5% and the market rate is 4.5% 30 days prior to closing the buyer’s rate would be 4.5%. If the market rate is 6%, the buyer’s interest rate would be the Cap Rate, 5%. This type of commitment provides the best bang for the buck since it is far less expensive but provides protection to both the buyers and the builder.

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