'Small gain in contract signings shows the potential for further increases'
US pending home sales surprised with a 0.9% improvement in July, marking the second consecutive month of increases, according to the National Association of Realtors.
NAR's Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, posted a 0.9% month-over-month uptick to 77.6 in July. However, pending transactions were down 14% compared to a year ago.
"The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home-buying offers," NAR chief economist Lawrence Yun said in the latest PHSI report. "Jobs are being added and, thereby, enlarging the pool of prospective home buyers."
First American chief economist Mark Fleming noted that July was a good month compared to August because mortgage rates were lower than they are now. But the homebuyers are likely not out of the woods yet.
"August data will likely be impacted. High mortgage rates are a double-edged sword – homeowners are further disincentivized to sell, and buyers lose affordability," Fleming said.
Read more: America mortgage rates – what's leading to the rise?
Along with rising mortgage rates, Yun added that limited inventory has also temporarily hindered the possibility of buying for many.
"Home sales are likely to remain close to the annualized rate of 4 million into the fall," Fleming said. "The last time the housing market fell below the annualized rate of 4 million home sales was in the depths of the Great Financial Crisis, between July and October 2010.
"According to our analysis, we were in a housing recession between May and November last year, briefly came out of recession between December and April of this year, but have since dipped back into housing recession this summer as rates have increased and sales volume dipped lower again."
In the Northeast region, pending transactions fell 5.8% from June to 63.2. The Midwest also saw a decline in sales, down 0.4% to 77.5. Meanwhile, The South (+2%) and West (+6.2%) PHSI climbed in July to 95.3 and 61.3, respectively.
"Interestingly, the West region experienced a meaningful price decline in the past year, and buyers are quickly returning as a result," Yun said.
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