Part II of this two-part series on Pending Sales focuses on how to read pending sales data and what we can learn from that data.
How to Read Latest Pending Sales Data
As we mentioned in Part I of this two-part series, the National Association of REALTORS® (NAR) Pending Home Sales Index (PHSI) indicated that the latest data on pending sales fell -3.9% m/m in April compared to pending home sales in March 2022.
The PHSI was also down to 99.3 in April 2022, -9.1% y/y.
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Lawrence Yun, Chief Economist with NAR, said, “The latest contract signings (PHSI) mark six consecutive months of declines and are at the slowest pace in nearly a decade.” Yun also noted that he foresees existing-home sales dropping -9% through the end of 2022 and home price appreciation slowing from +15% to +5% through year’s end.
It’s useful for real estate professionals to read NAR’s PHSI data through the years to get a feel of how and where pending existing home sales have been affected. For example, pending existing home sales during the past two years of the COVID pandemic have been unusually high whereas now, due particularly to climbing interest rates and scant inventory, the PHSI has fallen.
Regional Differences in Pending Sales
Regional differences are also quite clear within PSHI data. Take a look at the most recent regional specifics:
- Midwest – PSHI increase of +6.6% m/m but -2.8% y/y
- Northeast – PHSI fell -16.2% m/m and -14.3% y/y
- South – PHSI dropped -4.7% m/m and -10.2% y/y
- West – PHSI down -4.3% m/m and -10.5% y/y
Bottom line: The most recent PHSI indicates the slowest pace of pending home sales to be documented in nearly 10 years. The Midwest was the only region in the country where its PHSI data indicated rising sales between March and April 2022.
What to Learn from Pending Home Sales Data?
By reading pending home sales data, we’ve seen that April’s pending home sales were down. Does this downward movement in sales portend trouble ahead?
Most economists say no.
NAR’s Yun says no primarily because, even though home sales fell from March to April, home prices did not. Yun said, “Home prices in the meantime appear in no danger of any meaningful decline.”
Why? Yun said, “There is an ongoing housing shortage, and properly listed homes are still selling swiftly – generally seeing a contract signed within a month.”
Keller Williams’ Chief Economist Ruben Gonzalez agreed that the current data indicate falling sales remain “…well within the bounds of a normalizing market. As we look ahead to the summer months, we continue to expect year-over-year declines in total pending home sales after the extremely hot market we witnessed in the summer of 2021.”
Gonzalez added, “Recently the average 30-year fixed-rate mortgage appears to be leveling off around 5.25%, a full 2.25% above where rates were last year. These higher rates will be weighing on demand going forward; however, the market seems well-positioned to absorb the impact so far.”
Redfin’s Fairweather agreed with both Yun and Gonzalez. “…home price drops are climbing in the national data…(but)…we don’t expect that there’s a national home price bubble.” Fairweather also agreed that interest rates will level out and even fall eventually. “Once these inflation woes are resolved, rates will start going in their long-term trajectory, which is down.”
NAR’s president of demographics and behavior insights, Jessica Lautz, also believes interest rates will eventually cool and that “…hot buyer demand…still exists. There are a lot of buyers who have been waiting for less competition in the marketplace.” Lautz thinks that demand will help maintain the market on a positive level.
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