• NAR's Pending Home Sales Index is a measure of how many real estate contracts were signed in the given month.
  • In July, the overall uptick in contract activity was driven by the West, where labor market conditions are strong, NAR's chief economist said.
  • The housing market looks steady heading into fall, but buyers still face a limited array of choices.

We’ve all been told to cut through the obstacles that limit us from our full potential.

That same pep talk to the nation’s housing market would go something like this: all the pieces for flourishing home sales are in place. Mortgage rates are low, which should cause homebuyers to come out in droves.

But one big thing is standing in the way of modest growth becoming booming contract activity — mismatched supply and demand.

Every month, the National Association of Realtors (NAR) releases a pending home sales index (PHSI), which measures how many real estate contracts were signed in the given month — a forward-looking indicator.

In July, the market experienced an overall uptick in contract activity driven by the West. Specifically, the index rose 1.3 percent to 111.3 in July from a downwardly revised 109.9 in June, representing 1.4 percent growth year-over-year. (July 2015’s reading was 109.8.)

NAR’s Chief Economist Lawrence Yun evaluated current market conditions across the nation, and his analysis echoes the same sentiment we’ve been hearing over the past few months — close, but no cigar.

“Amidst tight inventory conditions that have lingered the entire summer, contract activity last month was able to pick up at least modestly in a majority of areas,” he said. “More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale.

“There’s little doubt there’d be more sales activity right now if there were more affordable listings on the market.”

Source: National Association of Realtors

Source: National Association of Realtors

He added: “The index in the West last month was the highest in over three years largely because of stronger labor market conditions. If homebuilding increases in the region to tame price growth and alleviate the ongoing affordability concerns, the healthy rate of job gains should support more sales.”

All the major regions saw a slight increase in pending home sales, save the Midwest:

  • West (increased 7.3 percent to 108.7, up 6.2 percent year-over-year)
  • Northeast (increased 0.8 percent to 96.8, up 1.1 percent year-over-year)
  • South (increased 0.8 percent to 123.9, up 0.4 percent year-over-year)
  • Midwest (decreased 2.9 percent to 105.8, down 1.1 percent year-over-year)

NAR uses a large national sample of signed residential property sale contracts to build its monthly pending home sales index. The sample size typically represents about 20 percent of transactions for existing-home sales.

The index level was benchmarked to 100 in 2001, which was the first year to be examined. Existing-home sales in 2001 were in the 5 million to 5.5 million range, which is considered normal for the population in the U.S.

“Realtors in several high-cost areas have been saying for quite a while that there is robust demand for single-family starter homes and townhomes at an affordable price point for young buyers,” Yun explained. “The homeownership rate won’t move up from its over 50-year low without a meaningful boost from first-time buyers, whose participation has yet to noticeably increase so far this year despite mortgage rates near all-time lows.”

Email Caroline Feeney

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