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Pending home sales show modest retreat in February

NAR reveals a 1% decline last month after substantial January gains

Pending home sales dropped 1% in February, declining 4.9% from last year, according to the latest report from the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, dropped to 101.9 in February, down from January’s 103.2.

Activity in the four major regions were split, with the South and West showing a bump in contracts while the Northeast and Midwest reported slight declines.

NAR’s chief economist, Lawrence Yun, said that considering the fact that January’s pending contracts were up nearly 5%, the 1% drop in February is not a significant concern.

But it’s clear that activity this spring won’t match up to what the market witnessed last year.

“As a whole, these numbers indicate that a cyclical low in sales is in the past, but activity is not matching the frenzied pace of last spring,” Yun explained.

But others, like Nationwide’s Chief Economist David Berson – who served as Fannie Mae’s chief economist – said the decline was a surprise.

“The modest decline in pending home sales for February was a surprise for the market, given increasingly positive underpinnings for the housing market,” Berson said, although he added that even with the drop, pending sales are still higher than average for the fourth quarter.

Berson said the data indicates that existing home sales will slide in March, but that he expects this to turn around soon.

“The MBA’s purchase applications rose again for March – and households do not apply for mortgages without an intention to buy a home. As a result, we expect that pending home sales will increase for March, helping to boost existing home sales again for April,” Berson explained.

Regionally, Yun pointed to concerns in the West, noting that even though the region experienced an uptick in contract action, current sales are well below what it experienced last year.

“There is a lack of inventory in the West and prices have risen too fast,” Yun said. “Job creation in the West is solid, but there is still a desperate need for more home construction.”

But, Yun noted that year-over-year increases in active listings signify a potential increase in inventory in many markets around the country, a positive trend to be sure.

Berson said he felt optimistic about the state the housing market for the remainder of the year despite this “temporary and modest block” in contract signings.

“There are good reasons to expect housing activity to expand in coming months,” Berson said, “as mortgage rates have dropped to the lowest levels in more than a year, house price gains have slowed (helping affordability), the job market remains solid (with wages accelerating), and household formations are running well-above trend.”

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