Hurricanes

Hurricanes contribute to drop in pending sales in August

The rate of pending home sales in the United States dropped for the second month in a row in August, according to the National Association of Realtors. The organization blames recent hurricanes and persistent shortages in the number of available homes for the slowdown, and now expects that fewer existing homes will be sold this year than in 2017.

August marked the fifth time in the past six months that pending sales have been slower than the previous month, and the fourth time in five months that the rate has fallen from the previous year. The Pending Home Sales Index for August stood at 106.3, down 2.6 percent from both July and August 2016. This reading was the lowest since January 2016, which had an index of 106.1

The Pending Home Sales Index is a measure of transactions where a contract has been signed but not yet finalized. This action typically happens within two months, making the index a forward-looking indicator of existing home sales. An index of 100 is equal to contract activity in 2001, which had an existing home sales rate of 5 million to 5.5 million; this is considered normal for the current U.S. population.

Lawrence Yun, chief economist at the National Association of Realtors, said the impact of Hurricane Harvey in Texas and Hurricane Irma in Florida contributed to a drop in pending home sales in the South. However, he continued to suggest that a limited number of homes for sale continued to stymie buyers at the end of the summer.

"August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes," said Yun. "Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search."

Yun said he believes that the momentum of home sales observed earlier in the year has stalled, so he has downgraded his earlier forecasts of existing home sales. He now predicts that there will be about 5.44 million sales in 2017, down 0.2 percent from the previous year, while median home prices will climb by 6 percent. In 2016, existing home sales were up 3.8 percent from the previous year while median prices climbed by 5.1 percent.

Despite this setback, Yun was optimistic about the future, saying the hurricanes' effect is only temporary and that any sales delayed by the storms will be made up next year.

"The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent," he said.

None of the four geographic regions outlined by the National Association of Realtors saw growth in pending sales in August. The Pending Home Sales Index for the Northeast stood at 93.4, down 4.4 percent from July and 4.1 percent from August 2016. The Midwest index of 101.8 was a drop of 1.5 percent from the previous month and 3.2 percent from the previous year.

The South had the largest decrease from the previous month, with its index falling 3.5 percent to 118.8; this also marked a year-over-year decrease of 1.7 percent. In the West, the Pending Home Sales Index fell 1 percent from July and 2.4 percent from August 2016 to 101.3.