Price of houses may be going higher, but pending sales are not decreasing either. In May, pending home sales reached its peak in years, going up 8% from April. In addition, contract signings went up 13.1% YoY, the highest in eleven months.
The increase is a major surprise to everyone, most especially to NAR’s Chief Economist Lawrence Yun who predicted differently. Yun says that although buyers are meticulous in their approach in terms of investing in housing, the record pending sales still shows the amount of wealth in the country.
Mortgage Rates and Listings Are the Driving Factors
The record increase in pending sales in May can be attributed to two factors – increase in listings and low mortgage rates. As of July 1, mortgage rate remains 3% – a strong indication that first-time buyers can maximize the opportunity to finance their houses through mortgage lenders and pay back over time with low interest. According to experts, increase in listings is a significant indication that there may be a reduction in house shortage.
Buyers are rushing to purchase homes because of the low availability of homes. Technically, the low availability of homes is because of the imbalanced supply and demand curve. When supply is low to meet the ever-increasing demands, investors with cash will price out other buyers quickly.
However, the increase in pending home sales suggests that buyers may not need to outbid each other to purchase a house.
All U.S. Regions Recorded Increased Pending Home Sales
According to the data released by the NAR, all the regions in the U.S. recorded MoM and YoY house increase. For example, the Northeast reported a 15.5% MoM and 54.6% YoY increase while the Midwest reported 6.7% MoM and 7.8% YoY increase. The South recorded a 4.9% MoM and 6.1% YoY while the West data shows 10.9% and 12.5% MoM and YoY respectively.
Yun predicts that market listings will increase as we enter the second quater of the year. If the promise of constructing more homes are kept and lumber prices decreases, listings will increase significantly. The equitable distribution of the Coronavirus vaccine is essential to the decline of house prices and building materials. Soon, the market will return to normalcy.
Yun also predicts a decline house prices is unlikely and price growth will maintain a steady supply. However, if prices eventually decline, it will open a window for outbid buyers to get into the market.
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Published by Eric Lawrence Frazier, MBA