The number of contracts signed to buy previously owned homes has hit the highest level in almost a year—even as the supply of homes remains low and prices are on the rise, particularly in the western U.S.
According to the National Association of Realtors, the number of pending home sales in March hit a high that hasn’t been see since May 2015. Its Pending Home Sales Index sat at 110.5 last month, up from 109.0 in February (an index of 100 indicates an average level of contract activity).
The pending sales level also represents a 1.4% increase from the index in March 2015. In terms to year-to-year gains, it’s also increased for 19 months in a row. It’s a trend that NAR chief economist Lawrence Yun attributes in part to “surprisingly low mortgage rates,” which he says “are easing some of the affordability pressures potential buyers are experiencing and are taking away some of the sting from home prices that are still rising too fast and above wage growth.”
Pending sales are considered a timely gauge of the housing market since they are based on contracts signed, making them a more forward-looking metric than closed transactions.
Still, the supply of existing homes in the United States stood at 1.98 million as of March, which represents a below average 4.5-month supply (economists typically consider a six-month supply to be a balanced market). The shortage of homes has contributed to rising home prices across the country.
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The western U.S. remains one region that has seen weakened demand for homes. This doesn’t mean the housing market there has turned cold. Quite the opposite actually, as the median home price in the West has risen nearly 40% in the past three years. Yet soaring prices have resulted in a declining rate of pending sales in the region in four of the last five months, and by an 8% decrease over the past year.
The good news is the West seems to stand alone in its downward trend of pending home sales. The index increased by 18.4% from a year ago in the Northeast and by 4% in the Midwest.