According to the June Pending Home Sales Index released by the National Association of Realtors® (NAR), contract signings are down a marginal 0.4 percent to versus prior month. Pending sales were still nearly 11 percent greater than those of a year ago. Therefore, industry professionals and homebuyers, remain optimistic about overall market conditions. Housing demand is still strong and improving, however a jump in interest rates in concert with higher home values, lowered affordability according to the NAR. Interest rates were historically low for many months before the spike in May, and NAR Chief Economist Lawrence Yun noted the negative impact on home affordability. Many regions— still suffer with inadequate existing home resale inventory.
In commenting on the June Pending Home Sales Index, Yun pointed out that a contract doesn’t always equal a closing. Buyers generally get pre-approved with a lender up front, but may wait to lock in their interest rate until they are under contract and clear to close on their home. This is sometimes as late as two weeks before the closing date. “Some homebuyers may change their minds if the rate rises too much, which apparently happened with some sales scheduled to close in June,” Yun said.
Indeed, if a buyer’s rate rises too much, the loan payments can increase to the point where the home under contract simply isn’t affordable anymore, especially if the buyers are already pushing the debt-to-income ratio on the loan. The latest Pending Home Sales Index report reiterated that most markets across the U.S. continue to experience a shortage of housing inventory. With fewer homes to buy there may be fewer contracts executed.
In this month’s Pending Home Sales Index report, NAR forecasts an 8 percent increase in home sales over 2012, and a median price bump of 11 percent. Projections are based on year to date data and expectations of steady pending contracts for the remainder of 2013.
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Sources:
1) http://www.realtor.org/news-releases/2013/07/pending-home-sales-slip-in-june