Used as a key indicator to determine the strength of the U.S. Housing Market, contracts to buy previously own homes fell last month. This is used as an indicator because it looks ahead by one to two months to see what will become sales. This is contrary to what the economists polled by Reuters predicted. They anticipated that it would go up by .07 percent from the prior month, however, it actually went down by this amount. Here are a few reasons why pending homes sales went down.
High mortgage rates
The housing market in general as been hampered by high mortgage rates. What moves these mortgage rates ever higher is the yield on 10-year treasuries, not the short-term rate hikes that are made by the Fed. According to Bankrate, the rates are probably going to continue going up, leading to a norm where it costs a lot more to borrow money to buy a home.
One of the contributing factors to the state of the housing market is a lack of skilled labor to build homes. The inventory has not kept up with the demand, forcing developers and contractors to play catch up. However, many of the skilled workers that were in the field 10 or more years ago have since left, resulting a labor shortage for home building.
House price inflation
Although this has slowed recently it is still outpacing wage growth. This is one metric that has contributed to a vast sidelining of first-time home buyers. Along with the student loan debt crisis which is keeping many people from buying their first home, this reality has made it even harder for these individuals to achieve this major life purchase.
Understanding the bigger picture
The National Association of Realtors came out and said that the lack of inventory is a “crisis” at a time when it was reported back in January. Nevertheless, Realtors are seeing a lot of traffic despite that the number of available listings had reached an all time low when compared to the previous year.
As mentioned before, contract signings typically precede sales by one to two months, or in other words, 45 to 60 days. That is why they are important indicators to determine what will happen to the housing market in the following months.
The NAR also reported that home resales had actually went up in November, but unfortunately the reality of this seemingly positive metric is that they also recorded their largest annual decline in seven and half years. Groundbreaking for new home went back up, but completion of single-family homes went down. Although this all sounds quite dreary, the NAR did release a statement recently stating that the pending home sales data does not adequately reflect the favorable mortgage rate conditions. However, forecasts for 2019 have predicted that the number of for-sales home should rise, as well as a decrease in the total number of home buyers.