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Home shoppers finally turned a corner, but not a sharp one.
After falling throughout the usually busy spring season, a monthly index of signed contracts to purchase existing homes increased 1.5 percent in June compared with May, and May's figure was revised slightly higher, according to the National Association of Realtors.
The index was 0.5 percent higher compared with June 2016, the first annual increase since March. So-called pending home sales are a forward indicator of closed sales two to three months later.
"The first half of 2017 ended with a nearly identical number of contract signings as one year ago, even as the economy added 2.2 million net new jobs," said Lawrence Yun, chief economist for the Realtors. "Market conditions in many areas continue to be fast paced, with few properties to choose from, which is forcing buyers to act almost immediately on an available home that fits their criteria."
The competition may have eased slightly in June, as the Realtors measured sales to investors at the lowest of the year (13 percent). As a result, cash transactions fell to 18 percent – the smallest share since June 2009 (13 percent). Investors favor cash over traditional financing.
"It appears the ongoing run-up in price growth in many areas and less homes for sale at bargain prices are forcing some investors to step away from the market," said Yun. "Fewer investors paying in cash is good news as it could mean a little less competition for the homes first-time buyers can afford. However, the home search will still likely be a strenuous undertaking in coming months because supply shortages in most areas are most severe at the lower end of the market."
Regionally, the pending home sales index in the Northeast rose 0.7 percent for the month and was 2.9 percent above a year ago. In the Midwest the index decreased 0.5 percent, and was 3.4 percent lower than June 2016. Sales in the South rose 2.1 percent for the month and were 2.6 percent above last June. The index in the West grew 2.9 percent monthly, but is still 1.1 percent below a year ago.
Closed sales of existing homes fell more than expected in June, and spring sales overall have been weaker than expected, hitting a high in March and falling from there. The Realtors blame that on a lack of affordable listings in the majority of local housing markets.
The supply of homes for sale nationally in June was 7.1 percent lower than June 2016 and has now fallen annually for 25 consecutive months. Unsold inventory was at a 4.3-month supply at the current sales pace, which is down from 4.6 months a year ago. The tight supply of homes for sale continues to push prices nationally to new highs. Higher prices and tough competition from all-cash buyers are sidelining some first-time homebuyers. Their share of home sales continues to run well below historical norms.
Sales of newly built homes were basically flat in June compared with May. Builders continue to be quite conservative in volumes, which are well below demand levels. The cost of land, labor and materials, as well as increased regulation in the industry, have kept builders from ramping up production. Those costs have also made it difficult for builders to put up entry-level homes, which is where the vast majority of demand is.