Pending Home Sales Rise, but Low Inventory Could Cause Headaches for Buyers

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The number: Pending home sales rebounded after two straight months of declines, but challenges remain as the housing market heads into the popular spring home-buying season.

The index of pending home sales from the National Association of Realtors increased 1.9% in March. Compared with a year ago, pending home sales were up 23%, though year-over-year comparisons reflect the onset of the coronavirus pandemic last year.

“The increase in pending sales transactions for the month of March is indicative of high housing demand,” Lawrence Yun, chief economist for the National Association of Realtors, said in the report. “With mortgage rates still very close to record lows and a solid job recovery underway, demand will likely remain high.”

The index measures where contracts have been signed but the transaction has yet to close. As a result, it is viewed as a forward-looking indicator for existing-home sales.

What happened: The Northeast saw the largest regional increase in contract signings, with a 6.1% uptick. The West and South both saw higher levels of home-buying activity, but pending home sales fell in the Midwest.

The National Association of Realtors now projects that existing home sales will rise 21% in 2021 to 6.2 million units sold.

The big picture: The demand is there. Millennials are growing older, and as they get married and start families, many are in the market for a home right now. Plus, the effects of COVID-19 continue, and demand for properties with more outdoor space and a dedicated home office is strong. It also doesn’t hurt that mortgage rates have dropped back below 3%.

The trouble is with inventory. The supply of homes is not meeting demand. Most of this is because home builders maintained a slow pace of construction activity for many years after the Great Recession, leading to a supply shortage. But existing homeowners have also stayed out of the market more than usual — some are likely dismayed by COVID-19’s health risks, while others are worried about being able to find somewhere to live after selling their home.

Either way, the low levels of inventory will inevitably constrain sales activity. And with home prices continuing to rise, many Americans are growing more anxious about the health of the housing market.

What they’re saying: “Today’s increase signals plenty of homebuyer demand, and suggests that where buyers can find sellers, home sales will happen,” said Danielle Hale, chief economist at Realtor.com.

Market reaction: The Dow Jones Industrial Average and the S&P 500 were both up in Thursday morning trading.

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source https://www.realtor.com/news/real-estate-news/pending-home-sales-rise-but-low-inventory-could-cause-headaches-for-buyers/