Pending home sales increase 1.6 percent in August

August saw a solid month of growth in pending home sales, according to the National Association of Realtors. Each region in the United States experienced an increase in pending sales on both a monthly and annual basis.

The Pending Home Sales Index for the nation as a whole stood at 107.3, up 1.6 percent from the previous month and 2.5 percent from the previous year. The index measures transactions where a contract has been signed but the sale has not yet closed. Since this action typically takes place within a couple of months, the index is used as a short-term forward-looking indicator of home sales. An index of 100 is equal to sales activity in 2001, where existing home sales fell within a range of 5 million to 5.5 million; this is considered normal for the current U.S. population.

"It is very encouraging that buyers are responding to exceptionally low interest rates," said Lawrence Yun, chief economist at the National Association of Realtors. "The notable sales slump in the West region over recent years appears to be over. Rising demand will reaccelerate home price appreciation in absence of more supply."

The West had the strongest increase in pending home sales of all regions. Its figure of 96.4 was a boost of 3.1 percent from July and 8 percent from August 2018.

Other regions saw milder increases. In the Northeast, the index was up 1.4 percent from the previous month and 0.7 percent from the previous year to 94.3. The South also had a 1.4 percent monthly increase, along with a 1.8 percent year-over-year boost, with its index hitting 124.4. The Midwest's index inched up 0.6 percent from July and 0.2 percent from August 2018 to 101.7.

Yun said he expects low mortgage rates to continue to stimulate home sales in the near future. The National Association of Realtors is forecasting that home sales will increase 0.6 percent this year while housing starts will grow by 2 percent. It predicts that home sales will grow 3.4 percent in 2020 while housing starts will shoot up 10.6 percent during the coming year.

"Unfortunately, so far in 2019, new home construction is down 2 percent," said Yun. "The hope is that housing starts quickly move into higher gear to meet the higher demand. Moreover, broader economic growth will strengthen from increased housing activity."

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