Continuing to respond to higher mortgage rates, the Pending Home Sales Index (PHSI) slipped for the third straight month, dropping 1.6 percent in August to 107.7 the lowest level since April, the National Association of Realtors which compiles the index reported Thursday. Economists had expected a more modest decline, 1.0 percent, to 108.3. NAR also revised the July index down to 109.4 from the originally reported 109.5.
The index covered the same month in which new home sales, reported Wednesday by the Census Bureau of Department of Housing and Urban Development, improved 7.9 percent. Like the PHSI, new home sales are tracked when buyers sign contracts. The existing home sales report for, also a product of the NAR, is based on closed transactions.
NAR Chief Economist Lawrence Yun said the drop was expected as a consequence of buyers accelerating purchase decisions while mortgage rates were increasing. Indeed, existing home sales jumped in both July and August. The corresponding PHSI rose a sharp 5.8 percent in May – the strongest month-month increase in two years. The index dropped a scant 0.4 percent in June.
Yun downplayed expectations for home sales.
“Moving forward, we expect lower levels of existing-home sales,” he said, “but tight inventory in many markets will
continue to push up home prices in the months ahead.”
According to the Case Shiller home price index, reported Tuesday, home prices rose 1.8 percent in July and are up 12.4 percent in the last year, the fastest annual growth rate in seven years.
Increasing rates and prices should serve as a catalyst for contracts and sales as buyers rush to lock in prices or rates before they go higher.
The drop in the August PHSI was the seventh in the last 12 months suggesting a slowdown in home-buying activity which could have a negative impact on the entire economy. Home buying drives new construction as well as certain housing related retail activity. The laast time thePHSI dropped fort here straight months was July-August-September 2011.
With the month-month decline, the PHSI is up 5.8 percent over August 2012, the 28th straight month of year-year increases, but the weakest 12-month increase since December 2011 when the index was up 3.9 percent year-year. New home sales have been up year-year for 23 straight months and in 26 of the last 28 months.
The PHSI fell in three of the four Census regions in August, improving only in the Northeast where it rose 4.0 percent and is up 5.1 percent in the last year. The index fell 3.5 percent in the South but is up 3.7 percent over August 2012. The index dropped 1.6 percent in the West but is 1.7 percent ahead of last year in that region. And, the index declined 1.4 percent in the Midwest but is 13.8 percent higher than August 2012.
The PHSI, according to the NAR, is based on a sample of about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, the base year.