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Supply Constraints in West Slow Contract Signings

NAR’s forward-looking pending home sales index slipped 4.4 percent in December, signaling a loss of momentum in contract signings, but the easing seems to be more about inventory shortages than weak demand, NAR Chief Economist Lawrence Yun says.

“Clearly to me the slowdown is due to the lack of inventory, the lack of supply,” Yun says, “because one can see the month’s supply situation variation. The month’s supply is the lowest in the West region and also it is in the West region that we see the highest price increase, clearly implying that it is a supply constraint slowdown rather than [a slowdown from] demand decelerating.”

Outside the West, the regions actually saw gains in contract signings in December, suggesting that the tight inventory in the West is a big enough issue that it’s dragging down the numbers measurably on a national basis.

Yun says builders are ramping up starts but they need to ramp up quite a bit more to make a dent in the inventory situation, because starts have been way down from what’s needed for several years now. So, builders are starting from a considerable deficit and their increased pace isn’t near enough what’s needed to make up for that lost ground.

NAR released its December 2012 pending home sales index today, January 28. The index is considered a leading indicator because it points to the pace of expected closings a month or two down the road.

More from NAR on the latest release.

Watch the 4-minute video.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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Comments
  1. Great information here, very interesting to see how the market is in the west is holding up. Good to know that the decrease in homebuying is not due to people not wanting new homes but it all stems from low supply, or incredibly high prices. Thanks for the great information.

  2. Ili

    Towns should be more flexible regards building permits.
    And lower down taxes on brand new constructions.
    Builders should have less profit.
    Banks should be extremely careful on lending.

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