Pending home sales hold steady

Pending home sales were mostly unchanged in October, but shifted marginally higher after two straight months of declines, according to the National Association of Realtors. Gains in the Northeast and West were offset by declines in the Midwest and South.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched 0.2% to 107.7 in October from an upwardly revised 107.5 in September and is now 3.9% above October 2014 (103.7). The index has increased year-over-year for 14 consecutive months.

Lawrence Yun, NAR chief economist, says pending sales have plateaued this fall as buyers struggle to overcome a scant number of available homes for sale and prices that are rising too fast in some markets.

"Contract signings in October made the most strides in the Northeast, which hasn't seen much of the drastic price appreciation1 and supply constraints that are occurring in other parts of the country," he said. "In the most competitive metro areas – particularly those in the South and West – affordability concerns remain heightened as low inventory continues to drive up prices."

According to Yun, although contract activity has slightly trended downward since the spring, the ongoing strengthening of several local job markets continues to fuel the improved demand for buying that has now pushed existing-sales above a 5 million sales pace for eight consecutive months.

"Areas that are heavily reliant on oil-related jobs are the exception and have already started to see some softness in sales because of declining energy prices," adds Yun.

Yun expects demand to remain stable through the final two months of the year, he forecasts existing-home sales to finish 2015 at a pace of 5.30 million – the highest since 2006.

Although further expansion in existing-sales is expected next year, ongoing inventory shortages and affordability pressures from rising prices and mortgage rates will likely temper sales growth to around 3 percent (5.45 million) in 2016. Home prices are expected to slightly moderate from a 6 percent increase in 2015 to 5 percent next year.

"Unless sizeable supply gains occur for new and existing homes, prices and rents will continue to exceed wages into next year and hamstring a large pool of potential buyers trying to buy a home," says Yun.