Pending Home Sales Slip in June

According to the National Association of Realtors® (NAR) pending home sales declined in June, and this after reaching their highest level in over six years during the previous month. The NAR stated that rising mortgage interest rates were “beginning to impact the market,” as the reason for the increase.

The NAR data for pending home sales is drawn from their monthly Pending Home Sales Index (PHSI), which is considered a forward-looking indicator, with the data reflecting contract signings but not closings. 

Pending Home Sales Index data shows that contract signings in June declined slightly by 0.4 percent to 110.9. June’s decline followed a six-year high for the index in May reaching 111.3, but was still 10.9 percent higher than June 2012 when it was 100.0.  Pending sales have been above year-over-year levels for the past 26 months, and the pace in May was the highest since December 2006 when it reached 112.8.

The PHSI was first used by the NAR in 2001 and an index of 100 “is equal to the average level of contract activity” during that year, says the NAR. The NAR also notes that the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which they say is “normal” for the current U.S. population.

According to the NAR, “In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.” Also, “a sale is listed as pending when the contract has been signed but the transaction has not closed.”

NAR chief economist, Lawrence Yun, says that, “higher home prices and interest rates are beginning to impact affordability.” He adds that mortgage interest rates began rising in May, which slowed the momentum of contract activity in June.  Additionally he notes that, “the persistent lack of inventory also is contributing to lower contract signings.”

The NAR currently project that existing-home sales will rise more than 8 percent in 2013, while inventory shortages will cause the median price to rise by nearly 11 percent for this year. July’s sales data will be available later this month.