Supply Squeezes Pending Home Sales for February

The Pending Home Sales Index fell a slight 0.4% to 104.8 in February, according to a National Association of Realtors (NAR) report released today.

After improving a revised 3.8% in January, economists point to restrained housing supply as the primary cause of this month's flatline. Despite the dip, these newest results managed to beat analyst expectations of a 0.7% decrease.

Source: Author, data from NAR.

The index is based on contract signings (with sales usually finalized one or two months later) and is benchmarked to 2001 contract activity. (An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined by the association.) Although February's month-over-month results are lackluster, this report clocks in as the second-highest reading in nearly three years and is 8.4% higher than February 2012.

"Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels," said NAR Chief Economist Lawrence Yun in a statement today. "Most local home builders are small businesses and simply don't have access to capital on Wall Street. Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market.

A report released yesterday by the Department of Housing and Urban Development shows that new home sales fell 4.6% in February.

Looking ahead, Yun expects existing-home sales and prices to increase 7% in 2013. Yun also noted that, although mortgage interest rates should remain at historical lows, he expects an upward trend to push rates to 4% by Q4 2013.

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