Although pending home sales inched up about 0.4% in April, compared to March, according to the National Association of Realtors' (NAR) Pending Home Sales Index, they were nonetheless 9.2% below April 2013, due mainly to the fact the spring home buyers have not yet emerged en masse so far this year, as is normally expected.
Pending home sales reached 97.8 on the index for April, up slightly from 97.4 in March, but way below the reading of 107.7 in April 2013.
The main culprit in the slowing of pending home sales is home price appreciation: Depending on which data is referenced, U.S. home prices have increased 11% to 12%, on average, in the past year. Driving the home price appreciation are low inventory levels, which is. in part, being driven by increased investor activity. Inventories, however, are improving as investors have retreated somewhat from the market. In the meantime, many Americans have seen their individual and household income decline. As a result, many first-time home buyers have been priced out of the market.
‘Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective home buyers' confidence,’ says Lawrence Yun, chief economist for NAR, in a release. ‘An uptrend in closed sales is expected, although some months will encounter a modest setback.’
Gains in the Midwest and Northeast offset declines in the West and South. Pending home sales increased 5% in the Midwest and 0.6% in the Northeast, while they dropped 2.9% in the West and 0.6% in the South.
Yun forecasts that the average rate for a 30-year fixed-rate mortgage will trend up to about 5.5% next year.
‘The extent to which higher mortgage interest rates will impact housing affordability and sales depends on income growth, ongoing improvement in the labor market and any change to mortgage underwriting conditions,’ he says.
NAR forecasts that existing-home sales will increase 5% to 6% to reach nearly 5.3 million this year – a modest gain compared to the 5.1 million recorded in 2013. What's more, the firm forecasts that existing-home sales will increase another 4% to 5% in 2015.