NAR Pending Home Sales Index Decreased 4.7% Annually

The National Association of Realtors (NAR) reported that its Pending Home Sales Index (PHSI) decreased by 4.7% on an annual basis in August. The index, which measures the number of contracts to buy existing homes that were signed but not yet closed, stood at 71.2 in August. This figure represents a significant decline compared to pre-pandemic levels, with the August reading being approximately 30% lower than the average for the years leading up to 2020. The decline in pending home sales suggests a cooling housing market, likely influenced by factors such as elevated mortgage rates and persistent housing affordability challenges.

The monthly data revealed that the largest declines in pending home sales were concentrated in the Northeast and Midwest regions of the United States. While specific percentage drops for these regions were not detailed in the provided information, their inclusion indicates a regional disparity in market activity. The Northeast region, historically characterized by higher home prices and limited inventory, and the Midwest, often seen as a more affordable market, both experienced notable decreases in contract signings. This suggests that the slowdown is not confined to a single type of market but is impacting diverse geographical areas.

The NAR's PHSI is a leading indicator of housing activity, as a sale on a existing-home contract typically occurs one to two months before a sale is completed. Therefore, the August data provides insights into potential future home sales in the fall months. The sustained decrease in pending sales points towards a continued challenging environment for potential homebuyers, who are grappling with the dual pressures of high borrowing costs and limited supply of available homes. This trend could lead to further moderation in home price growth or even price declines in certain markets if demand continues to wane.

The current level of the index, 71.2, is substantially below the benchmark of 100, which represents the level of contract activity in 2001. This indicates that the market is operating at a significantly reduced capacity compared to historical norms. The persistent gap between current activity and pre-pandemic levels underscores the ongoing impact of economic conditions on the housing sector. Factors such as inflation, interest rate hikes by the Federal Reserve, and broader economic uncertainty are likely contributing to the subdued demand for housing. The NAR's findings are crucial for policymakers, real estate professionals, and consumers seeking to understand the trajectory of the housing market.