The National Association of REALTORS® (NAR) indicates that the number of signed contracts to buy existing homes fell by -0.7% in July 2018 compared to June 2018.
Not only did the number of signed contracts or pending home sales, a key indicator for the future of closed sales, drop for the 7th consecutive month, pending sales were down -2.3% in July 2018 compared with July 2017.
Lawrence Yun, chief economist with NAR, said, “…The reason sales are falling off last year’s level is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford (to buy a home).”
According to all housing experts, the market needs a significant surge in new listings to cool prices and boost sales. The market did get a bit of a reprieve in July when the supply of housing remained flat (meaning inventories did not decrease even more) but a month long reprieve is not enough. Again, the market needs a consistent supply of homes coming onto the market.
Home prices continue to rise at a fast pace. According to the latest S&P CoreLogic Case Shilling report, home prices increased +6& in June. Prices usually lag behind sales and, since sales have been slowing throughout 2018, prices may begin to soften.
Affordability continues to weaken the market due to higher mortgage interest rates. Since the beginning of 2018, interest rates have risen a full .5 percentage point.
Let’s look at regional sales:
- Northwest rose +1.0% monthly but fell -2.3% annually
- Midwest rose 0.3% but fell -1.5% annually
- South fell -1.7% monthly and -0.9% annually
- West fell -0.9% monthly and -5.8% annually*****
Obviously, sales were the weakest in the West, due to affordability issues.
Although homebuilders were most active in the West and the South, they were not building homes for the strongest demand market area, the lower end market.
Markets in the West, specifically Denver and Seattle, are beginning to see increased housing supplies. Hopefully, more inventories may cool prices a bit and entice more buyers into the market.