The pending home sales index, an estimate of existing home sales, has accurately provided the direction of the monthly home resale reports.

The survey is down for the second month, providing further evidence of a housing slowdown.

The Econoday consensus estimate was for the index to rise 0.5%. Instead, the pending home sales index declined 1.3%.

Spring sales data have not been favorable for the housing sector. Pending home sales are down for a second straight month, 1.3 percent lower in April to an index of 109.8 which is 3.3 percent below this time last year. This index tracks contract signings for resales and the results point to weakness for final sales in May and June. Final resales contracted in April as did new home sales while the month’s housing starts were also weak. Spring is the big season for housing and these are not the results of a sector that will be leading the 2017 economy.

Pending Home Sales Fall Below 2016 Levels

Mortgage News Daily reports Pending Home Sales Fall Below 2016 Levels.

Pending home sales had been expected to rise slightly in April after declining 0.8 percent in March. Instead, the National Association of Realtors’® (NAR’s) Pending Home Sale Index (PHSI) slumped for the second straight month, dropping 1.3 percent. The PHSI, based on contracts signed for existing home purchases, fell from 111.3 (revised from 111.4) in March to 109.8.

The April dip put the Index 3.3 percent below its level in April 2016. This was the first year-over-year decline since last December and the largest since the Index fell 7.1 percent in June 2014.

Lawrence Yun, NAR chief economist, said the fading contract activity in the normally active spring market is due to significantly weak supply levels. These, in turn, are spurring deteriorating affordability conditions. “Much of the country for the second straight month saw a pullback in pending sales as the rate of new listings continues to lag the quicker pace of homes coming off the market,” he said. “Realtors are indicating that foot traffic is higher than a year ago, but it’s obviously not translating to more sales.”

Yun added, “Prospective buyers are feeling the double whammy this spring of inventory that’s down 9.0 percent from a year ago and price appreciation that’s much faster than any rise they’ve likely seen in their income.”

The economist sees little evidence that the record low levels of inventory will improve anytime soon. Homebuilding activity remains below the necessary levels and too few homeowners are listing their home for sale.

“The unloading of single-family homes purchased by real estate investors during the downturn for rental purposes would also go a long way in helping relieve these inventory shortages,” said Yun. “To date, there are no indications investors are ready to sell. However, they should be mindful of the fact that rental demand will soften as the overall population of young adults starts to shrink in roughly five years.”

NAR expects that existing home sales will increase about 3.5 percent from 2016 to 5.64 million units and the national median existing-home price is expected to increase around 5 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.

The decline of sales was nearly nationwide in scope and all four regions are now running lower index numbers than the previous April. The West was the only region enjoying a month-over-main gain. The PHSI in the Northeast decreased 1.7 percent to an index of 97.2, now 0.6 percent lower than the previous April. In the Midwest, the index fell 4.7 percent to 104.4, a decline of 6.1 percent year-over-year.

Supply Issue?

In addition to the decline this month, the Pending Home Sales Index for March was revised lower, from -0.8 % to -0.9 %. The second quarter recovery thesis is dying on the vine.

Once again Yun blames supply. And once again Yun is wrong. If supply was triple and prices remained the same, sales would not be skyrocketing.

Of course, if supply tripled and sales did not soar, prices would drop. That is the real issue. Prices are above what buyers can afford to pay.

Although the number of resales is well below the bubble years, the median price isn’t.

Median Home Prices 1963-Present

More Trapped Homebuyers

New home sales are recorded at signing. Existing home sales are recorded at closing.

Thus, the March report has negative implications for April and May, while the April report has negative implications for resales in May and June.

Looking ahead, existing homebuyers in the last two to three years overpaid. In some areas, notably California, home buyers overpaid dramatically.

Another round of trapped homebuyers unable to sell their homes is right around the corner.

For further discussion, please see Investigating Trends in Median Home Prices: When Did Price Acceleration Start?

Mike “Mish” Shedlock