Pending home sales in February surprised everyone with an unexpected jump of 5.5 percent. The National Association of Realtors® said its Pending Home Sales Index, which is a leading indicator based on signed home purchase contracts, rose to 112.3 in February from 106.4 in January. The reading is 2.6 percent above a year earlier, and surpassed index readings for every month since May 2006 with the exception of last April.
Lackluster pending home sales in recent months have worried the housing industry, indicating that the spring market might be less successful than hoped. Analysts had expected pending sales to recover from their 2.8 percent downturn in January, but they undershot the market in their estimates for February. Those polled by Econoday had been looking for an increase ranging from 1.4 to 3.5 percent, with a consensus of 2.4 percent.
Lawrence Yun, NAR chief economist, says the level of contract activity in February is proof that, with spring on the doorstep, demand is rising "Buyers came back in force last month as a modest, seasonal uptick in listings were enough to fuel an increase in contract signings throughout the country," he said. "The stock market's continued rise and steady hiring in most markets is spurring significant interest in buying, as well as the expectation from some households that delaying their home search may mean paying higher interest rates later this year."
Added Yun, "Last month being the warmest February in decades also played a role in kick-starting prospective buyers' house hunt."
Yun says the tight inventory will continue to play a role in the spring market. He expects to see "continued ebbs and flows in activity as new supply struggles to replace listings that are going under contract at a very quick pace. This is especially the case at the lower- and mid-market price ranges, where choices are minimal and prices are being bid higher by multiple offers," he said.
He continued, "The homes most buyers are in the market for are unfortunately the most difficult to find and ultimately buy. The country's healthy labor market is translating to greater job security, but affordability is not improving because home prices in some areas are still outpacing incomes by three times or more because of tight supply. How much new and existing inventory there is on the market this spring will determine if sales can reach their full potential and finally start reversing the nation's low homeownership rate."
Existing-home sales are forecast to be around 5.57 million this year, an increase of 2.3 percent from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 4 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.
Contract sales were up in every part of the country. The PHSI in the Northeast rose 3.4 percent to 102.1 in February, putting it 6.6 percent higher than a year earlier. In the Midwest, the index jumped 11.4 percent to 110.8, although it is still 0.6 percent lower than the previous February.
Pending home sales in the South climbed 4.3 percent to an index of 127.8, 4.2 percent above the same period in 2016. The West's number increased 3.1 percent in February to 97.5, 0.2 percent higher than a year ago.
The Pending Home Sales Index is a leading indicator of upcoming existing home sales. A pending sale is usually expected to be finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined.