Rising home prices and a tight supply of homes for sale are keeping buyers at bay.
A monthly index measuring signed contracts to buy existing homes, so-called pending home sales, fell 1.4 percent in August compared to July, according to the National Association of Realtors (NAR). Expectations had been for a slight increase.
While sales are still 6.1 percent higher than one year ago, the annual gains are shrinking.
“Pending sales have leveled off since mid-summer, with buyers being bounded by rising prices and few available and affordable properties within their budget,” said Lawrence Yun, chief economist for the NAR. “Even with existing-housing supply barely budging all summer and no relief coming from new construction, contract activity is still higher than earlier this year and a year ago.”
Home prices in July were 5.3 percent higher than July of 2014 and are now just 5.5 percent below their peak from June of 2006, according to a new report from Black Knight Financial Services. After rising through most of the spring, mortgage rates came down slightly in August, but not enough to entice more buyers into the competitive market. The potential for higher rates is just one of several concerns Realtors now cite.
“The possibility of a government shutdown and any ongoing instability in the equity markets could cause some households to put off buying for the time being,” wrote Yun in a release. “Furthermore, adapting to the changes being implemented next month in the mortgage closing process could delay some sales.”
Starting October 3, new government regulations will require lenders to disclose more documents to borrowers regarding new loan applications. While the regulations have already been delayed in order to give lenders more time to comply, there is still concern that the new rules will delay or even scuttle some sales. Some lenders are counseling potential buyers to extend their rate locks, even if it costs extra money, to protect themselves against possible delays.
Buyers, however, are more likely to be thwarted by the higher prices, which are supported by such tight inventory. Closed sales of existing homes in August fell a sharper-than-expected 4.8 percent in August from July, with Realtors again blaming a lack of homes for sale.
Realtors predict the national median existing-home to increase 5.8 percent in 2015 to $220,300. Yun forecasts total existing-home sales this year to increase 7 percent to around 5.28 million, about 25 percent below the prior peak set in 2005 (7.08 million).
Regionally, pending home sales in the Northeast fell 5.6 percent for the month but are 8.9 percent above a year ago. In the Midwest sales fell 0.4 percent monthly and are up 6.5 percent from a year ago. In the South sales 2.2 percent monthly and are 4.1 percent above last August. In the West sales rose 1.8 percent monthly and are 7.6 percent higher than one year ago.