Pending home sales continue to decelerate in February

Pending transactions for existing home sales fell on an annual basis for the 14th straight month in February, according to the National Association of Realtors. The organization said indicators still point to the possibility for health spring sales, although not as robust as recent years.

The Pending Home Sales Index for the month stood at 101.9. This was down 1 percent from January and 4.9 percent from February 2018.

The index measures transactions where a contract has been signed but a sale has not yet been closed. This action usually takes place within a couple of months, making the index a good forward-looking indicator for home sales. A PSHI of 100 is equal to sales activity in the year 2001, when the volume of existing home sales for the year fell within the range of 5 million and 5.5 million; this is considered normal for the current population of the United States.

Lawrence Yun, chief economist at the National Association of Realtors, said the slowdown in pending sales comes off a strong boost in contract signings to start the year.

"In January, pending contracts were up close to 5 percent, so this month's 1 percent drop is not a significant concern," he said. "As a whole, these numbers indicate that a cyclical low in sales is in the past but activity is not matching the frenzied pace of last spring."

In the Northeast, the PHSI stood at 92.1 – down 0.8 percent from January and 2.6 percent from February 2018. The West had an index of 87.5, inching up 0.5 percent from the previous month but dropping 9.6 percent from the previous year.

"There is a lack of inventory in the West and prices have risen too fast," said Yun. "Job creation in the West is solid, but there is still a desperate need for more home construction."

The South had the strongest monthly growth, with its PHSI increasing 1.7 percent from January to 121.8; however, this was still 2.9 percent lower than in February 2018. In the Midwest, the index was down 7.2 percent from the previous month and 6.1 percent from the previous year.

While mortgage rates increased steadily during 2018, they have since declined considerably in recent months to hover just above 4 percent. The Federal Reserve recently indicated that it is not planning any further rate hikes this year.

"If there is a change at all, I would say the Fed would lower interest rates in 2019 or 2020," said Yun. "That would stimulate the economy and the housing market. But the expectation is no change at all in the current monetary policy, which will help mortgage rates stay at attractive levels."

Yun's updated forecast for 2019 expects that existing home sales will total 5.3 million, which would mark a year-over-year decrease of 0.7 percent. He also anticipates that the median price for an existing home will climb 2.7 percent from the previous year. He expects that both existing sales and median home prices will increase by 3 percent in 2020.

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