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Tight Inventories Constrain Home Purchase Activity

by devteam March 27th, 2013 | Share

Demand is now pushing at the edges of the supply of available homes according to the National Association of Realtors® (NAR).  Limited buyer choices constrained contract signings in February and NAR’s Pending Home Sales Index slipped 0.4 percent from the previous month.</p

The Index, a forward-looking indicator of future home sales, dropped to 104.8 from a downwardly revised 105.2 in January but is still at a recent high, second only to April 2010 when it reached 110.9 shortly before the deadline to qualify for the home buyer tax credit.  The index was 8.4 percent higher than a year earlier when it was 96.6 and February marked the 22nd month that contract activity increased on an annual basis.</p

Lawrence Yun, NAR chief economist, said limited inventory is holding back the market in many areas.  “Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels,” he said.  “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.”</p

On a regional basis the Index declined 2.5 percent in the Northeast but was 6.8 percent higher than a year earlier at 82.8.  The Midwest was up 0.4 percent month over month to 103.6 and 13.2 percent year over year.  Pending home sales in the South slipped 0.3 percent to an index of 118.8 in February but are 12.1 percent above February 2012.  In the West the index increased 0.1 percent in February to 101.4 but is 0.8 percent below a year ago.</p

Yun said NAR expects existing-home sales to rise about 7 percent in 2013 to approximately 5 million sales, which is near the current level of activity.  “The volume of home sales appears to be leveling off with the constrained inventory conditions, and the leveling of the index means little change is likely in the pace of sales over the next couple months,” he said.  He also expects the median existing home price to increase about 7 percent while interest rates move up slowly to 4 percent by the end of the year.</p

NAR’s Pending Home Sales Index reflects contract signings which are generally expected to result in sales in about sixty days.  An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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