More Americans signed contracts to buy homes in August, signaling that low mortgage rates may spark a sustained turnaround for the housing market.
The National Association of Realtors said Sept. 26 that its pending home sales index rose 1.6% to 107.3 in August. Pending home sales, which reflect purchases that are usually completed a month or two later, are up 2.5% from their pace a year ago.
Lower borrowing costs have been slowly boosting buyer demand. Persistently high prices, driven up by a tight supply of available homes, had previously blunted the benefits of low mortgage rates. Demand has fluctuated slightly over the past few months as home prices have risen, with contract activity dipping in July.
Many economists say they are optimistic that low mortgage rates will reverse the trend. Daniel Silver, an economist at JP Morgan Chase Bank, said the index was another sign that the housing market may be regaining momentum.
"Many other housing indicators also have firmed (to varying degrees) this year, and we think that the drop in mortgage rates relative to late last year has helped boost activity in the housing market," Silver said in a note.
Still, most analysts say home construction, which has been squeezed by a shortage of land and labor, will also need to pick up for the market to fully recover. So far, builders have focused primarily on the higher end of the market, driving the average price of housing in August to a government-reported record level of $404,200.
Measured month over month, pending sales rose across all four regions in August, especially in the comparatively expensive West, where contract activity rose 3.1%. Sales in the West also surged the most when measured year over year, with a gain of 8%.
"The notable sales slump in the West region over recent years appears to be over," said Lawrence Yun, chief economist of the NAR. "Rising demand will reaccelerate home price appreciation in the absence of more supply."
U.S. new home sales jumped 7.1% in August, as low mortgage rates pull buyers into the housing market.
The Commerce Department said Wednesday that new homes sales increased to a seasonally adjusted annual rate of 713,000, up from a revised 666,000 in July. So far this year, sales have risen a healthy 6.4%.
Trade tensions and slower economic growth have pushed down interest rates, helping homebuyers for the moment. But new construction has yet to meet the demand from likely buyers, so the sales gains could translate into higher prices.
August's average sales price rose 6.1% from a year ago to $404,200, a record level not adjusted for inflation. Economists say there was a shortage of affordable homes available for purchase.
"Sales of entry-level homes, priced below $200,000 accounted for only 10.0 percent of total, as builders remained focused on the upper end of the market," said George Ratiu, senior economist at Realtor.com.
Much of last month's sales growth came from homes that have yet to be built, a sign that low mortgage rates are behind the surge in purchases. The 30-year mortgage rate averaged 3.73% last week, down from 4.65% a year ago according to mortgage buyer Freddie Mac.
Still, along with an uptick in home construction and sales of existing homes, which make up the bulk of the market, the jump in new home sales may signal a strengthening housing market.
"This makes the housing data three-for-three in August, as housing starts, existing home sales, and new home sales all increased and were noticeably stronger than expected," said Stephen Stanley, chief economist at Amherst Pierpont. "This may reflect the plunge in mortgage rates as well as the moderation in home price appreciation so far this year."
Home sales climbed in the South and the West, but slipped in the Northeast and the Midwest. The 16.5% monthly sales gain in the more expensive West was reflected by an increase in purchases of homes priced above $400,000 relative to July.
To help push home sales, Coldwell Banker Residential Brokerage, a residential real estate brokerage, and HomeAdvisor, a digital marketplace that provides services to the market, have joined forces to launch RealVitalize, a home improvement program. This program provides home sellers with home improvement resources such as staging, painting and other upgrades prior to or during the home listing period with no up-front costs or interest charges.
Through the pilot program, a homeowner who lists their home for sale with a participating brokerage company will have the option to make non-structural home improvements and repairs using a service professional from the HomeAdvisor network. The program is also available to current home sellers who want to enhance their home to help achieve optimal offers.
“The partnership with HomeAdvisor gives our real estate agents an advantage over similar programs because they are removed from managing the home improvement process, allowing them to focus on marketing and selling homes,” said Charles El-Moussa, president of Coldwell Banker Texas. “Today’s home sellers and buyers are looking to real estate professionals to provide solutions for an easier home transaction process, which occurs through RealVitalize. It is a favorable program for all parties.”
– Additional reporting by FWBP Staff