Pending home sales drop in February

For the second straight month pending home sales declined, according to the National Association of Realtors (NAR).

The latest Pending Home Sales Index (PHSI), a  forward-looking indicator of home sales based on contract signings, dropped 10.6% to 110.3 in February. 

Year-over-year, contract signings fell 0.5%. An index of 100 is equal to the level of contract activity in 2001.

“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” said Lawrence Yun, NAR’s chief economist.

“Only the upper-end market is experiencing more activity because of reasonable supply,” he continued. “Demand, interestingly, does not yet appear to be impacted by recent modest rises in mortgage rates.”

According to Yun, even with rising mortgage costs, rates are expected to remain relatively low at no more than 3.5% in 2021. He says the rates are still advantageous to both prospective buyers and to current homeowners who are contemplating refinancing.

Nationally, homes priced at or above $250,000 have largely been driving home sales for the last several months, the NAR said. 

But Yun noted that even homes priced above $500,000 to less than $1 million are subject to the same low-inventory dilemma.

“Potential buyers may have to enlarge their geographic search areas, given the current tight market,” Yun said. “If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price.”

Markets seeing the biggest growth and recovery as of March 6 include Austin, Texas; Denver, Colo.; Riverside, Calif.; Portland, Ore.; and Phoenix, Ariz.

Here’s how pending home sales performed on a regional basis:

• The Northeast PHSI fell 9.2% to 92.3 in February, a 3.9% dip from a year ago. 
• In the Midwest, the index dropped 9.5% to 102.4 last month, down 6.1% from February 2020.
• Pending home sales transactions in the South declined 13.0% to an index of 133.2 in February, up 2.9% from February 2020. 
• The index in the West fell 7.4% in February to 96.9, up 1.9% from a year prior.