Pending home sales dipped for a second straight month in February, the National Association of REALTORS® reported Wednesday. Each of the four major U.S. regions witnessed month-over-month declines last month, while results were mixed in the four regions year-over-year.
The declines come not from a cooling market, but from a red-hot one in which inventory is scarce. “The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift, but contracts are not clicking due to record-low inventory,” says NAR Chief Economist Lawrence Yun.
NAR’s Pending Home Sales Index—a forward-looking indicator based on contract signings—dropped 10.6% to 110.3 in February. Year-over-year, contract signings fell 0.5%. An index of 100 is equal to the level of contract activity in 2001. “Only the upper-end market is experiencing more activity because of reasonable supply,” Yun says. “Demand, interestingly, does not yet appear to be impacted by recent modest rises in mortgage rates.”
Yun says that even with rising mortgage costs, rates are expected to remain relatively low at no more than 3.5% in 2021, noting that rates are still advantageous to both prospective buyers and to current homeowners who are contemplating refinancing.
Nationally, homes priced above $250,000 have largely been driving home sales for the last several months. However, Yun indicates that even homes priced above $500,000 to less than $1 million are subject to the same low-inventory dilemma.
“Potential buyers may have to enlarge their geographic search areas, given the current tight market,” says Yun. “If there were a larger pool of inventory to select from—ideally a five-or a six-month supply—then more buyers would be able to purchase properties at an affordable price.”
