In what might finally be a sign that home sales are poised for a turnaround, NAR’s forward-looking pending home sales index jumped 10.4 percent in October from the previous month and is also up significantly on a year-over-year basis. Although it’s too soon to tell whether the gain will be sustained, there are trends berewing in the market that suggest it will be.
For one thing, rental rates are increasing. Historically, there’s typically been a strong correlation between rising rental rates and rising home prices. That relationship has broken down in the past few years because of the severity of the downturn in the housing market. But with rental rates now well into long-term gains, pressure is mounting for renters to jump to home ownership if only because it’s becoming cheaper to buy than to rent in a lot of markets and at a lot of price points. Of course, the hurdles to obtaining financing remain a big stumbling block, and in fact that might be a good part of the reason there’s been so much divergence between NAR’s pending sales index and actual closings.
We’ve been seeing that divergence for the last couple of years. Pending home sales will go up but actual closings won’t follow suit as closely as they have in the past. We can’t know all the reasons for this, but NAR surveys of its members have suggested that agents are seeing a lot of closings collapse because buyers can’t get financing.
In the 4-minute video above, NAR Chief Economist Lawrence Yun talks about the latest pending sales figures and what might be coming down the road, in part because of rising rental rates.