Eye On Housing
The Pending Home Sales Index decreased in August for the fifth time in six months, pulling 2017 existing sales below the pace set in 2016. The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts reported by the National Association of Realtors (NAR), decreased 2.6% to 106.3 in August, the lowest level since January 2016. The PHSI has now declined on an annual basis in four of the past five months, and is 2.6% below its level in August 2016.
The PHSI decreased in all four regions, ranging from 1.0% in the West to 4.4% in the Northeast. Year-over-year, the PHSI also decreased in all four regions, ranging from 1.7% in the South to 4.1% in the Northeast.
NAR reported that demand continues to overwhelm the terribly low supply levels in much of the country. August existing sales declined for the third month in a row, and new home sales also fell in August. However, most of the missed closings due to hurricanes will appear in 2018. Builder confidence remains on firm ground, suggesting that new residential construction will continue its upward trend and address the tight inventory of homes for sale.
Market indicators say the housing market is slowing down. Total unit volume is expected to fall below last year’s level. That being said, demand is still strong. What exactly does that mean? Possibly plenty of demand at lower prices. Buyers just can’t tolerate 8-10 percent year-over-year price increases. Obviously wages are not keeping up with real estate inflation.
Bracketing by price range would make this type of report a lot more interesting.
Still well within the Bollinger bands. Supply / inventory is just not there. It would be useful to juxtapose this against median price paid backdrop. If prices fall as volume falls then you have a genuine pullback. Whereas if volume falls as price inflates, you just have an inventory shortage. What I am seeing in my market area is a continued tightening of supply against a backdrop of continued price inflation. As more people lock themselves into the current price range, there will be still fewer sellers, as people tend to hold owner occupied property for a certain amount of time. Additionally household size is increasing despite population being somewhat stable. What this tells you is more people are being forced into smaller spaces due to affordability. The capital / purchasing power of the average American may not be there for much longer for inflation to be able to sustain this rate of appreciation. There will be a tapering off, eventually. However, if the price of labor (due to shortage), and materials such as lumber continue appreciating due to other outside forces like category 5 hurricanes causing billions in damages, the price of new homes will be forced up, and existing home prices will follow by the economic principle of substitution. And due to core inflation remaining low, federal funds rate is likely to remain low to stable for some time. There may be still more inflation yet to come, particularly at the entry-level to mid-range where the market is most active / has the most participants and demand.