By Gino Blefari, President and CEO, Intero Real Estate Services, Inc.
Pending home sales, a key indicator pointing to short-term market projections, eased back from a six-year high in June as rising interest rates and restricted supply began to impact buyers.
The National Association of Realtors’ latest Pending Home Sales Index was down 0.4% in June from 111.3% in May, but still 10.9% above the same month a year ago when it was 100%.
Regionally, the pending sales index fared the best in the West where it jumped 3.3% to 114.2% and is 4.4% above where it was a year ago. The index remained unchanged in the Northeast at 87.2, while coming in 12.2% higher than year ago levels.
In the Midwest, the index fell 1% to 114.3%, but was 19.5% higher than it was a year ago. And pending sales in the South fell 2.1% to an index of 118.3% in June, which was 9.5% higher than the same month last year.
Does this mean summer is over and markets will ease through the end of the year? Not necessarily.
The fact that pending sales are still notably higher across the U.S. than they were at this time last year bodes well. What we’re seeing in the month-to-month slippage is more likely to be from the recent rise in interest rates, as well as continued low supply in markets where there is healthy demand.
In some places, buyers are either getting outbid due to excessive competition or they simply cannot find a home that suits their needs.
Because of this, new construction is another indicator we all should watch closely. I expect to see much more aggressive building in the next five years in markets where land is abundant.
With demand so high and interest rates still incredibly attractive, many markets could probably see sales increase substantially if there were more opportunities to buy.
Pending sales may have slipped, but the fact is the market is still moving pretty well in many areas. Supply is the wildcard this year.