The National Association of Realtors (NAR) reported today that pending home sales have slipped for the second-straight month, and affordability issues may bear some of the blame.
After surging all summer, pending home sales fell by 2.2% from August to September and then another 1.1% from September to October, according to the trade group’s Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings.
The trade group says pending home sales for November will be released on Dec. 30, and investors and homebuyers will know then if the slowing in home sales is a trend or a blip. Either way, sales are way ahead of last year, as scarce supply meets rock-bottom interest rates and a surge of buyers that includes many interested in moving further out of cities and into homes with more space.
Rising prices may be taking a toll on affordability
In fact, contract signings were up 20% in October 2020 from October 2019, and the inventory of homes for sale and mortgage rates are still bouncing along at record lows. Meanwhile, the NAR reported earlier this month the median existing single-family home price climbed 12% on a year-over-year basis, to $313,500 -- a pace four times as fast as median family income grew (a 2.9% rate) at the same time.
In today’s announcement, NAR chief economist Lawrence Yun says while the market remains hot, those rising prices may now be hurting affordability: “The combination of these factors -- scarce housing and low rates -- plus very strong demand has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first-time buyers, who don't have the luxury of using housing equity from a sale to use as a down payment. Work-from-home flexibility has also increased the demand for both primary and secondary homes."
The Millionacres bottom line: Markets still strong, for now
Each of the nation’s four regions are still showing strong year-over-year gains in pending home sales, but only the South showed an uptick from September to October, the PHSI report said.
Meanwhile, the NAR said in today’s announcement that Realtor.com's Housing Market Recovery Index, which tracks market activity since the pandemic arrived in January, shows the strongest recovery through Nov. 14 in the following markets:
- Las Vegas-Henderson-Paradise, Nevada
- San Francisco
- Seattle-Tacoma-Bellevue, Washington
- San Jose-Sunnyvale-Santa Clara, California
- Los Angeles-Long Beach-Anaheim, California
The NAR says its next PHSI monthly report, covering November’s pending sales, will be on Dec. 30. That will give investors and potential homebuyers a last look for the year at whether this slowdown in sales is a blip or a trend.