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First Cut: November Pending Home Sales Index fails to signal a pickup for existing home sales

The November NAR Pending Home Sales Index dipped 0.7% to 101.4, down from 102.4 in October. The index had its lowest reading since 101.3 in June 2014. Month-over-month, the performance across regions was mixed. The Northeast was up 2.7% and the West up 2.8%. The Midwest was down 2.3% and the South 2.7%.

However, compared to a year ago, pending home sales were down across the board. Total sales were off 7.7%, with a sharp decline in the West (-12.2%), substantial fall offs in the South and Midwest (-7.4% and 7.0%, respectively), and a noticeable decrease in the Northeast (-3.5%). In part the South and West may be due to limited housing stock after natural disasters, but higher mortgage rates certainly are another part of it. In November 2017, the Freddie Mac 30-year fixed rate was 3.92%. It was little shy of a full percentage point higher at 4.87% a year later.

Consumers’ ability to afford a home has diminished with higher prices and higher mortgage rates.

Movements in the Pending Home Sales Index tend to foreshadow the level of sales for existing homes. The November reading does not suggest that existing home sales are going to stage a rebound soon. NAR Chief Economist Lawrence Yun pointed out that the closure of the federal government means that some home purchases will have to be delayed due to the inability of buyers to obtain required flood insurance. If this comes to pass and the government shutdown in lengthy, it may quash some sales entirely or push a block of sales into the spring months and provide a boost then.

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