Pending home sales took a hit in April, dropping 7.7%, as reported by the National Association of REALTORS®. All four U.S. regions saw declines both month-over-month and year-over-year.
The Pending Home Sales Index (PHSI), which predicts future home sales based on contract signings, fell to 72.3 in April. Compared to last year, this is a 7.4% decrease. For reference, an index of 100 matches the contract activity level of 2001.
April’s rising interest rates significantly cooled home buying despite an increase in inventory. However, the Federal Reserve’s expected rate cut later this year might improve affordability and supply.
Regionally, the Northeast’s PHSI fell 3.5% from March to 62.9, a 3.1% decrease from April 2023. The Midwest dropped 9.5% to 70.7, down 8.7% from a year ago. The South’s index lowered by 7.6% to 88.6, an 8.2% drop from last year. The West saw an 8.5% decrease to 55.9, down 7.3% year-over-year.
Home prices are reaching record highs, but with more supply, the rate of increase should slow. Significant price declines are unlikely, but regions experiencing job growth may offer second-chance opportunities for buyers.
The PHSI is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is considered pending when the contract is signed but not yet closed, typically finalizing within one or two months. However, the timeline from pending to closed sale can vary due to mortgage, inspection, or appraisal issues.
The index sample covers about 40% of multiple listing service data each month, showing that monthly sales-contract activity tends to align with closed existing-home sales in the following two months. An index of 100 represents the average contract activity level in 2001, a year with 5.0 to 5.5 million existing-home sales, considered normal for today’s population.
Thanks for reading,
Chris
