WASHINGTON – More Americans signed contracts to purchase homes in July, a sign that demand for home ownership remains strong despite a shortage of listings on the market.
The National Association of Realtors said Wednesday that its seasonally adjusted pending home sales index rose 1.3 percent in July to 111.3, the highest reading since April. The index of upcoming sales increased 1.3 percent from a year ago. The number of signed contracts improved in the Northeast, South and West. But pending sales dipped in the Midwest.
Housing has staged a solid rebound in prices and sales this year, but the real estate market faces potential challenges as fewer properties are being listed for sale. Sales listings have slumped 5.8 percent from a year ago to 2.13 million. The shortage means that many buyers are paying higher prices and scrambling to make offers sooner, restricting just how high sales can recover from the depths of the housing bust that triggered the Great Recession almost nine years ago.
Pending sales contracts are a barometer of future purchases. A sale is typically completed a month or two after a contract is signed – suggesting that finished sales should rebound after slipping in July.
The inventory shortage hit purchases of homes in July. The seasonally adjusted annual sales rate fell 3.2 percent to a rate of 5.39 million homes, the Realtors reported last week.
Inventories have fallen on an annual basis for the past 14 months. The increased demand reflected by the improving sales has failed to cause more homeowners to list their properties on the market, suggesting that many are still recovering equity lost by the housing downturn. Without sufficient equity in their current homes, many of these owners would be unable to generate a down payment for another home with the proceeds from a sale.
But the shortage might also stem from the increase in first-time buyers this year. Existing homebuyers often sell their house in order to finance the purchase of another property, which keeps inventory levels stable. But first-timers are buying homes out of savings, so the number of listings should fall when a rising share of purchases go to this group, noted Tian Liu, chief economist at Genworth Mortgage Insurance.
“These buyers are not bringing additional inventory to the market,” he said.
The lack of supply has led to home prices climbing at more than double the growth of average wages.
The median home sales price was $244,100 in July, up 5.3 percent from a year ago.