Homebuyers retreated in August, unenthused by the meager supply of homes for sale and by accelerating prices.
Signed contracts to buy existing homes fell 2.4 percent for the month to the second lowest level of the year, according to a monthly index from the National Association of Realtors (NAR). July's reading was revised down as well. These so-called pending home sales are now down 0.2 percent compared to August of 2015.
"Contract activity slackened throughout the country in August except for in the Northeast, where higher inventory totals are giving home shoppers greater options and better success signing a contract," said Lawrence Yun, NAR's chief economist. "In most other areas, an increased number of prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages or disheartened by the competition for the miniscule number of affordable listings."
New home construction has not picked up much this year, with single family housing starts falling 6 percent in August compared to July, according to the U.S. Census. Yun warned that without bigger gains in home construction, the current housing recovery could stall. The supply of homes for sale has declined on an annual basis for 15 straight months, and homes are selling at a far quicker pace compared to a year ago.
The stark lack of supply continues to push home price gains. A monthly reading of home prices nationally in July by S&P CoreLogic Case-Shiller showed a 5.1 percent annual gain, up from 5.0 percent in June. Prices also posted monthly gains.
"The S&P CoreLogic Case-Shiller National Index is within 0.6 percent of the record high set in July 2006. Seven of the 20 cities have already set new record highs," noted David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "Eight of the cities are seeing prices up 6 percent or more in the last year. Given that the overall inflation is a bit below 2 percent, the pace is probably not sustainable over the long term."
Regionally, pending home sales in the Northeast rose 1.3 August monthly and are 5.9 percent above a year ago. In the Midwest, sales decreased 0.9 percent monthly and 1.7 percent annually. In the South, they declined 3.2 percent monthly and are now 1.5 percent lower than last August, and in the West sales fell 5.3 percent monthly and are 0.6 percent lower than a year ago.