August marked the fourth straight month of positive movement for pending home sales, increasing 8.8% from July, according to the National Association of Realtors (NAR).
The monthly gain brought the NAR’s Pending Home Sales Index to a reading of 132.8, a new record high. Year to year, contract activity was also strong, logging an increase of 24.2% from August 2019. Sub-indices for the nation’s four regions all posted month-over-month jumps, ranging from 4.3% in the Northeast to 13.1% in the West.
“Tremendously low mortgage rates – below 3% – have again helped pending home sales climb in August,” said chief economist Lawrence Yun of the NAR. “Additionally, the [Federal Reserve] intends to hold short-term fed funds rates near 0% for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtably aid homebuyers continuing to enter the marketplace.
“While I did very much expect the housing sector to be stable during the pandemic-induced economic shutdowns, I am pleasantly surprised to see the industry bounce back so strongly and so quickly.”
The record volume of pending transactions may not lead to a record amount of home sales, Yun acknowledged, because of sampling size variations and simple attrition — not all contracts necessarily lead to closings. Additionally, Yun said, sales growth won’t be sustainable without sufficient supply, which remains near historical lows.
“As homebuyers continue their search this fall, one headwind remains the insufficient number of listings for sale,” concurred Joel Kan, associate vice president of economic and industry forecasting for the Mortgage Bankers Association. “The competitive purchase market is putting upward pressure on home prices and reducing affordability. New construction has picked up significantly, but that pace may not be sustainable given the rise in builder material costs and the upcoming colder winter months. That is why more existing supply is also needed to keep up with demand.”
Surging sales activity is also leading to price appreciation, which can eventually hinder the buyer pool, Yun added.
“Home prices are heating up fast,” he said. “The low mortgage rates are allowing buyers to secure cheaper mortgages, but many may find it harder to make the required down payment.”