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The numbers: The index of pending home sales rose 8.8% in August as compared with July, hitting a new all-time high, the National Association of Realtors reported Wednesday.
It is the fourth consecutive month in which the level of Americans signing contracts to purchase homes has risen. Compared with a year ago, contract signings were up 24%.
“Tremendously low mortgage rates — below 3% — have again helped pending home sales climb in August,” Lawrence Yun, the National Association of Realtors’ chief economist, said in the report. “While I did very much expect the housing sector to be stable during the pandemic-induced economic shutdowns, I am pleasantly surprised to see the industry bounce back so strongly and so quickly.”
The index gauges real-estate transactions where a contract was signed for a previously-owned home but the sale had not yet closed, benchmarked to contract-signing activity in 2001.
What happened: Pending home sales increased across the entire country, led by a 13% gain in the West.
The pending home sales report is generally viewed as a preview of what could be expected for existing-home sales in the coming months. However, the record level set in August for contract signings won’t necessarily lead to a record level of existing-home sales, Yun said. That’s because some people will fail to close on a home after signing a contract, and there are differences in the sample sizes used to produce the reports.
The big picture: As housing market activity has largely met or exceeded its pre-pandemic levels, the question now becomes how long that can last. And now some economists are taking a slightly less optimistic stance on the future trajectory of home sales.
Last week, Zillow ZG, +1.81% released a new forecast in which the company’s economists projected that home sales would peak this fall and then decline gradually throughout 2021. They expect sales volumes to remain above pre-pandemic levels generally, but for typical season trends to start playing out. “The frenzied activity of the summer is showing signs of the typical fall slowdown,” the Zillow team wrote.
Furthermore, the supply of homes remains a concern. While buyers have been eager to make a purchase, sellers have been less inclined to put their properties up for sale. This could be because of lingering concerns about the strength of the economy as COVID-19 case counts remain high — or it could be a reflection of sellers’ fears that they won’t find a new home for themselves if they decide to list.
Without more homes added to the market though, inventory constraints will create a natural ceiling on home sales for the foreseeable future.
What they’re saying: “The increase in contract signings is shrinking the limited number of homes for sale to some of the lowest levels in recent history. This is causing a massive imbalance to the market’s supply and demand, which is rewarding sellers with home price increases that more than double the pace of wages,” said George Ratiu, senior economist at Realtor.com.
Market reaction: The Dow Jones Industrial Average DJIA, +1.28% and the S&P 500 SPX, +0.99% both rose slightly in Thursday morning trading.
