Pending sales improve, but continue to lag on annual basis

Pending sales in the United States saw some growth in June, according to the National Association of Realtors. However, it was also the sixth consecutive month of year-over-year declines in this figure.

The Pending Sales Index in June stood at 106.9. This was a 0.9 percent increase from May, but a 2.5 percent drop from June 2017. An index of 100 indicates contract activity equal to that in 2001, which had a sales volume of between 5 and 5.5 million homes. These parameters are considered normal for the current U.S. population.

"After two straight months of pending sales declines, home shoppers in a majority of markets had a little more success finding a home to buy last month," said Lawrence Yun, chief economist at the National Association of Realtors. "The positive forces of faster economic growth and steady hiring are being met by the negative forces of higher home prices and mortgage rates. Even with slightly more homeowners putting their home on the market, inventory is still subpar and not meeting demand. As a result, affordability constraints are pricing out some would-be buyers and keeping overall sales activity below last year's pace."

The National Association of Realtors defines a pending sale as a transaction where a contract has been signed but the sale has not been closed. This action usually happens within a couple of months of the signing, allowing pending sales to be used as a forward-looking indicator of upcoming home sales.

An increase in inventory likely helped boost the number of homes under contract. According to the latest existing home sales report by the National Association of Realtors, there were 1.95 million homes for sale in June – a 4.3 percent increase from May and a 0.5 percent increase from June 2017, the first year-over-year increase in inventory in three years.

Some markets saw a particularly strong increase in homes for sale. According to Realtor.com, the number of active listings was up 24 percent in Portland, Ore.; 20 percent in Providence, R.I.; 19 percent in Seattle, Wash.; 17 percent in Nashville, Tenn.; and 15 percent in San Jose, Calif.

"Home price growth remains swift and listings are still going under contract at a robust pace in most of the country, which indicates that even with rising inventory in many markets, demand still significantly outpaces what's available for sale," said Yun. "However, if this trend of increasing supply continues in the months ahead, prospective buyers will hopefully begin to see more choices and softer price growth."

In all regions, pending sales were up from the previous month but stayed below the previous year's levels. The Pending Home Sales Index in the Northeast was 93.7, up 1.4 percent from May but down 4.1 percent from June 2017.

The index crept up 0.5 percent to 101.9 percent, but remained 2.1 percent below the previous year's figure. The PHSI in the West rose 0.7 percent from May but dropped 5.6 percent from June 2017 to 95.4. The index of 124.2 in the South was an increase of 1.1 percent from May, but a year-over-year decrease of 0.3 percent.

With half a year's data available, Yun has upgraded his 2018 forecast and expects a more significant decrease in existing home sales. He estimates that there will be approximately 5.46 million transactions completed this year, down 1 percent from 2017, while median home prices will grow by 5 percent. In May, Yun predicted a 0.4 percent drop in existing home sales.

In 2017, existing home sales were up 1.1 percent while median home prices increased 5.7 percent.