September 2015 Pending Home Sales Index Declines

The National Association of Realtors (NAR) seasonally adjusted pending home sales index declined. Our analysis of pending home sales agrees. The quote of the day from this NAR release:

There continues to be a dearth of available listings in the lower end of the market for first-time buyers, and Realtors in many areas are reporting stronger competition than what is normal this time of year because of stubbornly-low inventory conditions.

Pending home sales are based on contract signings, and existing home sales are based on the execution of the contract (contract closing).

The NAR reported:

Pending home sales index was down 2.3 % month-over-month and up 3.0 % year-over-year (last month was reported +6.1 % year-over-year).

The market was expecting month-over-month growth of -1.0 % to 2.5 % (consensus 1.0 %) versus the growth of -2.3 % reported.

Econintersect‘s evaluation using unadjusted data:

the index growth was down 4.1 % month-over-month and up 2.5 % year-over-year.

The current trends (using 3 month rolling averages) declined but remains in expansion.

Extrapolating the pending home sales unadjusted data to project October 2015 existing home sales, this would be a 2.5 % decline year-over-year for existing home sales.

Unadjusted 3 Month Rolling Average of Year-over-Year Growth for Pending Home Sales (blue line) and Existing Home Sales (red line)

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From Lawrence Yun , NAR chief economist:

…. a combination of factors likely led to September’s dip in contract signings. There continues to be a dearth of available listings in the lower end of the market for first-time buyers, and Realtors® in many areas are reporting stronger competition than what’s normal this time of year because of stubbornly-low inventory conditions. Additionally, the rockiness in the financial markets at the end of the summer and signs of a slowing U.S. economy may be causing some prospective buyers to take a wait-and-see approach.

Despite contract activity softening from the more robust levels seen earlier this year, the housing market will still likely be one of the brighter spots in the economy in coming months.

With interest rates hovering around 4 percent, rents rising at a near 8-year high, and job growth holding strong — albeit at a more modest pace than earlier this year — the overall demand for buying should stay at a healthy level despite some weakness in the overall economy.