Pending home sales decreased for the fourth consecutive month in September, as higher mortgage interest rates and higher home prices curbed buying power, according to the National Association of Realtors (NAR).
NAR says the Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, fell 5.6% to 101.6 in September – from a downwardly revised 107.6 in August – and is 1.2% below September 2012 when it was 102.8. The index is at the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings, says NAR.
‘Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity,’ explains Lawrence Yun, chief economist for NAR. But he believes concerns over the government shutdown may have played a large role. "In addition, government and contract workers were on the sidelines with growing insecurity over lawmakers' inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases."
NAR's data also reports that the PHSI in the Northeast dropped 9.6% to 76.7 in September and is 6.4% below levels from a year ago. In the Midwest, the index fell 8.3% to 102.3 in September but is 5.7% higher than in September 2012. Pending home sales in the South slipped 0.4% to an index of 116.2 in September but are 2.0% above those of a year ago. The index in the West dropped 9.0% in September to 97.3 and is 9.8% lower than in September 2012.
According to NAR, total existing-home sales this year will be 10% higher than those of 2012 – reaching more than 5.1 million, and they are likely to hold even for next year. The national median existing-home price is expected to rise 11% to 11.5% for all of 2013 but will moderate to a 5% to 6% gain in 2014, says NAR.
Yun says this is the first time in 29 months that pending home sales weren't above year-ago levels and that we should anticipate lower home sales in the fourth quarter – with a plateau into next year. "Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year," he explains.