Taking advantage of an affordable mortgage rate environment that enables more home buyers to cash in on their creditworthiness, consumers' contract signings for home purchases reached a near 12-month peak in March, the beginning of what is traditionally a busy period for the residential real estate sector.
The National Association of Realtors' Pending Home Sales Index reached 110.5 in March, up 1.4 percent both on a month-over-month and year-over-year basis, thanks to robust mortgage activity in three of the four U.S. regions. In a contrast to what has been the case, the West was the only part of the country where contract signings on single-family units slipped from the same 31-day stretch in 2015.
Lawrence Yun, NAR's chief economist, related how regardless of the shortage of inventory – giving buyers fewer options to choose from – home seekers are entering the market at an appreciable clip.
"Despite supply deficiencies in plenty of areas, contract activity was fairly strong in a majority of markets in March," Yun explained. "This spring's surprisingly low mortgage rates are easing some of the affordability pressures potential buyers are experiencing and are taking away some of the sting from home prices that are still rising too fast and above wage growth."
FRMs have yet to reach 4 percent in 2016
Historically low mortgage rates have been the norm for well over a year now. Through most of 2015, 30-year fixed-rate loans were south of the 4 percent threshold. The Federal Reserve had given intimations that with last year's uptick in short-term interest rates, mortgages could soon follow. This hasn't come to pass, though, given the Fed's forecast that further hikes predicted will most likely not happen given global economic instability. Through the year thus far, 30-year FRMs have yet to break above 4 percent, with the week ending Jan. 7 the last time it was even close to doing so. Throughout March, the average stayed between 3.6 percent and 3.7 percent.
The rate at which pending home sales moved in March came as a bit of a surprise to many economists. Surveyed by The Wall Street Journal, their consensus was an uptick of 0.5 percent, when in actuality it was 1.4 percent.
Demand seems to be cooling off
However, NAR's chief economist noted that the slowdown in the West may be a microcosm of the country overall if supply doesn't pick up the pace.
"Demand is starting to weaken in some areas, particularly in the West, where the median home price has risen an astonishing 38 percent in the past three years," Yun referenced. "As a result, pending sales in the region have now declined in four of the last five months and are lower than one year ago for the third month in a row. Closed sales in the region in March were also below last year's pace."
As of March 31, there are approximately 1.9 million homes in the U.S. up for sale but haven't been purchased, according to NAR's estimates, representing an inventory of 4.5 months at the present pace of purchases. A year ago, there were 2 million residential homes ready to be sold.
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