Home buyers signed fewer contracts to buy existing homes in June, despite renewed optimism in the overall housing recovery.
The pending home sales index from the National Association of Realtors fell 1.4 percent from May. It is up 9.5% from June of 2011.
Signed contracts are a forward-looking indicator for existing home sales, but given mortgage and appraisal issues plaguing today's housing market, final sales have not tracked the pending index as closely as they have historically.
“Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” said the NAR's chief economist Lawrence Yun. “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”
Investors have been rushing to buy distressed properties, seeking to take advantage of today's hot rental market, but those inventories have been declining precipitously, especially in some of the hardest hit markets, like Phoenix and parts of California. So much of the recent sales activity has been on the low end, so a drop in this supply really shows just how dependent this market is on distressed sales.
“Any bank-owned properties that have been held back in markets with inventory shortages should be released expeditiously to help meet market demand,” Yun said. “Housing starts will likely need to double over the next two years to satisfy the pent-up demand for both rentals and ownership.”
While most investor purchases are all-cash, the mortgage market continues to plague home sales, as banks are overwhelmed with refinance applications and are therefore taking longer to process all mortgage applications. Despite a nearly 6 percent jump in the pending home sales index in May, existing home sales fell 5.4 percent in June. New home sales, which are measured by signed contracts, not closings, fell 8.4 percent compared to the previous month.
The Realtors note that there is buyer interest out there, but sellers are still reluctant to list their homes. This despite new evidence that home prices have stabilized in many of the nation's markets. Lackluster job growth and negative equity continue to keep many potential buyers on the sidelines. Mortgage rates are at record lows, but home purchase applications have been flat over the past month, according to the Mortgage Bankers Association.
Regionally the Pending Home Sales Index in the Northeast fell 7.6 percent from May but is 12.2 percent higher than a year ago. In the Midwest the index slipped 0.4 percent but is 17.3 percent above June 2011. Pending home sales in the South declined 2.0 percent but are 8.8 percent above a year earlier. In the West the index rose 2.6 percent from May and is 3.0 percent higher than June 2011.