Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Pending Home Sales Exceed 2013 Levels

Written by Than Merrill

For the better part of a decade, the housing sector has struggled to stay above water. However, despite a decline in October’s pending home sales, the housing market remains poised to remove itself from the depths of the recession. Even with fewer pending home sales this fall, the housing market is the beneficiary of healthy activity and an expanding economy. Subsequently, pending home sales are still above year-over-year levels. Experts even suggest that the addition of Millennial buyers will bolster the housing market for years to come.

According to Lawrence Yun, Chief Economist with the National Association of Realtors (NARs), a decline in October’s pending home sales is nothing to be concerned about. In fact, similar contract signings have experienced a healthy pace for nearly six months in a row. “In addition to low interest rates, buyers entering the market this autumn are being lured by the increase in homes for sale and less competition from investors paying in cash,” he said. “Demand is holding steady but would be more robust if it weren’t for lagging wage growth and tight credit conditions that continue to hamper those individuals looking for relief from rising rents.”

Over the course of October, the median existing home price peaked at $208,300, which represents a 5.5% increase over the previous year. In fact, October was a big reason for the appreciation. U.S. home prices rose at a faster year-over-year pace in October than in September, snapping a seven-month slowdown. Real estate data provider CoreLogic acknowledged that prices increased 6.1 percent in October compared with 12 months earlier. That was up from September’s year-over-year increase of 5.6 percent.

“The increase in median prices for existing-homes has leveled off, representing a healthier pace that has kept affordability in-check for buyers in many parts of the country while giving more previously stuck homeowners with little or no equity the ability to sell,” says Yun.

With home prices appreciating at a rate not seen since the downturn, homeowners are quick to take advantage of new-found equity. While the percentage of mortgage originations rose in the third quarter of this year, the biggest gain was in home equity lines of credit (HELOCs). More homeowners were awarded the opportunity to tap into equity they hadn’t seen in years. Originations of these loans, which are often in addition to primary mortgages, jumped over 17% for the quarter. While most HELOC borrowers are using the money to improve their existing assets (rehabbing their own home), others are using it to consolidate debt. Credit cards can carry interest rates more than four times that of a HELOC. It is essentially a great time to take advantage of the equity in your home if you have the opportunity.

The recent progression of the housing sector has proved encouraging. As a result, the NAR’s Pending Home Sales Index is 2.2% higher than it was at this time last year. The index is currently at 101.9, suggesting a healthy level of activity. Perhaps even more importantly, this is the sixth consecutive month that the index has showed promising results.

In addition to the Pending Home Sales Index, Yun shares a similar sentiment towards the foreseeable future of the housing market. Yun is forecasting existing-home sales this year to fall slightly below 2013 (5.1 million) to 4.9 million, and then increase to 5.3 million next year and 5.4 million in 2016. Home prices are projected to rise in accordance with sales. Yun, in particular, believes a 4% increase is on the horizon for 2015 and 2016.

The Pending Home Sales Index can be broken down into several regions, each of which represents the performance of different parts of the country:

  • The Northeast’s PHSI increased 0.5% to 87.9 in October.
  • The Midwest’s PHSI declined 0.6% to 100.6 in October.
  • The South’s PHSI decreased 1.0% to 118.3 in October.
  • The West’s PHSI dropped 3.2% to 98.1 in October.

Every state reported a price gain in October. CoreLogic said prices reached new highs in Colorado, Louisiana, Nebraska, New York, North Dakota, South Dakota, Tennessee, Texas and Wyoming. In 27 states, home values are within 10 percent of their previous peaks.

It is important to note that cities with promising job sectors – including Houston, Dallas, Seattle and Denver – will continue to see prices appreciate at a faster rate. Millennials are more inclined to move to these regions with the intentions of finding a higher paying job and more affordable housing. In fact, many experts have suggested that an impending influx of Millennial homebuyers could provide the market with the traction it has so desperately needed.