Slow Quarter Ahead Judging from Pending Home Sales

The National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI) for September indicates home sales will stumble in the year’s final quarter as buyers struggle with declining home affordability.

The PHSI, a forward-looking indicator that’s based on contract signings (not closings) fell for the fourth straight month to 101.6 from August’s downwardly revised reading of 107.6—a 5.6 percent drop. Year-over-year, September’s index was down 1.2 percent from 102.8—the first yearly drop in 29 months, the association reports.

“Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity,” saidNAR chief economist Lawrence Yun. “In addition, government and contract workers were on the sidelines

with growing insecurity over lawmakers’ inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases.

“This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014. Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year,” he added.

According to the association, September’s index was at its lowest level since December 2012, when it registered 101.3.

Still, NAR expects total existing-home sales this year will be 10 percent higher than 2012, coming out to more than 5.1 million. The national median existing-home price is expected to rise 11 to 11.5 percent this year, followed by a 5 to 6 percent gain in 2014.

On a monthly basis, all four regional PHSI values declined, with the Northeast leading the drop at 9.6 percent. The West’s PHSI was down 9.0 percent compared to August, the Midwest was down 8.3 percent, and the South’s index slipped 0.4 percent.

Annual numbers were mixed. The PHSI for the Northeast and West both fell, decreasing 6.4 percent and 9.8 percent, respectively. In the Midwest and the South, index readings were 5.7 percent and 2.0 percent above September 2012, respectively.

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