The National Association of REALTORS®, or NAR, released some numbers recently that both seem to solidify a trend as well as provide some buying opportunities.
Toward the end of each month, NAR tallies the pending home sales for the previous month. The March 27th report was for the month of February. According to the data, pending sales fell by 0.8%. Compared to the same period from last year, pending sales are also lower by 10.5% and the February numbers hit a 30 month low.
A pending home sale occurs when a sales contract is signed by both buyer and seller and an earnest money deposit has been provided. These sales are not sold and closed – yet. Pending home sales can fall out due to a variety of factors including such things as the buyers cannot qualify for financing or the property does not appraise. Yet a vast majority of pending home sales do become final within 60-90 days.
That’s why this report is valuable. It looks into the future 2 or 3 months and gives a good estimate on what the landscape will be like then.
Why are Pending Sales Down?
Fewer sales contracts signed imply that home sales will also fall. But this continuous trend and 30 month low might be something that sellers and buyers should take note. Real estate values across the country have been on the rebound for two years, up from the disastrous lows that started in 2009. As values plummeted and consumers began to feel more confident that the real estate bottom had in fact been reached, buyers entered the market armed with low home prices and low mortgage rates.
Fewer pending sales could indicate that the current market is saturated and the pent-up demand has waned and the market is stabilizing.
Old man winter has also been on the receiving end of finger pointing since late December when winter storms first began their tour of the United States. Snowstorms and iced roads shut down several major metropolitan areas this past winter and it’s certainly possible that consumer activity of all stripes was hampered. With regard to housing, given a choice, buyers might want to wait until the six feet of snow melts just a tad before embarking on a home shopping journey. Fewer active buyers will result in fewer offers and fewer contracts.
It might also mean that those who could qualify for financing have already done so and those that remain on the sidelines may not be able to get a mortgage in today’s lending environment. Yet whatever or whoever is to blame the result might just be a signal to potential home buyers that now is the time to start looking for a home.
Lower Demand = Lower Prices
When fewer pendings are reported, it signals that housing demand is making some adjustments. And when fewer buyers are in the market, sellers will have to lower the asking price of the home in order to sell.
For a home buyer, that means there are fewer buyers in the market and you may be able to secure a better deal due to waning interest in real estate. For such an extended period, sellers were reluctant to price their real estate at a mark that would bring multiple offers at a brisk pace. Sellers have watched their equity positions swell over the previous few years and were satisfied with waiting until their list price was met. And in several areas throughout the country, real estate has been on a real tear making for a solid seller’s market. Yet perhaps not anymore, at least on a national level.
Finally, lower demand is coupled with relatively low mortgage rates that are still around. While mortgage lenders aren’t offering 30 year fixed rates as low as they were back in January of 2013, rates are still very close to their historic lows. Lower demand combined with low interest rates make a compelling case for a “buy now” approach.
A Home Buying Opportunity
For those who are on the fence about buying now, a case is made to get off that fence and begin a home search. The facts today show pending home sales down and mortgage rates still below 5.00%. Yet with the Fed gradually ending the quantitative easing, or QE3 program late this fall, where will rates be then? Most experts believe that rates will be higher than they are now. They certainly won’t go back to January 2013 levels, at least without some sort of unexpected political or economic mega-event.
Less competition, lower demand and low interest rates mean buying now is probably better than buying later. The numbers suggest nothing less and waiting might just mean paying more both over the short and long term. If you’re still thinking about buying now, these recent reports should provide a little motivation.