The number of contracts signed to buy previously owned homes rose 1.4% in March to hit its highest level in nearly one year, but the National Association of Realtors warned Wednesday that prices in the West have risen so high that demand is actually cooling.
NAR’s Pending Home Sales Index, which tracks contract signings (as opposed to closed sales) for previously owned homes, rose to 110.5, up from February’s downwardly revised 109.0. (An index of 100 represents an average level of contract activity.)
Last month’s pending sales level was 1.4% above March 2015 (also 109.0). The index has increased for 19 straight months in terms of year-over-year gains, and is at its highest level since May 2015 (111.0). March’s index read fell within the range of expectations from economists surveyed by Bloomberg ahead of the release.
“Despite supply deficiencies in plenty of areas, contract activity was fairly strong in a majority of markets in March,” said Lawrence Yun, NAR’s chief economist. “This spring’s surprisingly low mortgage rates 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.”
Shortage of supply has continued to push housing prices up across the country. Developers have not built a sufficient number of single-family homes during this housing recovery to keep up with demand: housing starts last month stood at a 1.089 million annual pace; economists say 1.5 million new homes are needed each year to meet demand. This graph from the Calculated Risk blog shows that construction is well below historic norms. The shortage, particularly at the low end of the market, is threatening affordability.